The document discusses the liquidation process for partnerships. It begins by defining liquidation as winding up a partnership's activities by selling assets, paying liabilities, and distributing any remaining cash to partners. It then covers dividing losses and gains, distributing cash/assets, payments to partners, and various case scenarios that may occur during liquidation. It also discusses installment payments to partners and developing a cash distribution program to facilitate payments.
Solution Manual Advanced Accounting by Baker 9e Chapter 16Saskia Ahmad
Solution Manual, Advanced Accounting, Thomas E. King, Cynthia Jeffrey, Richard E. Baker, Valdean C. Lembke, Theodore Christensen, David Cottrell, Richard Baker, Advanced Financial Accounting, Advanced Financial Accounting by Baker Chapter 18, Advanced Financial Accounting by Baker Chapter 18 9th Edition, 9th Edition,
Solution Manual Advanced Accounting by Baker 9e Chapter 16Saskia Ahmad
Solution Manual, Advanced Accounting, Thomas E. King, Cynthia Jeffrey, Richard E. Baker, Valdean C. Lembke, Theodore Christensen, David Cottrell, Richard Baker, Advanced Financial Accounting, Advanced Financial Accounting by Baker Chapter 18, Advanced Financial Accounting by Baker Chapter 18 9th Edition, 9th Edition,
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Solution Manual, Advanced Accounting, Thomas E. King, Cynthia Jeffrey, Richard E. Baker, Valdean C. Lembke, Theodore Christensen, David Cottrell, Richard Baker, Advanced Financial Accounting, Advanced Financial Accounting by Baker Chapter 18, Advanced Financial Accounting by Baker Chapter 18 9th Edition, 9th Edition,
statement of cash flow and statement of retained earnings.sabaAkhan47
its a lecture on statement of cash flow....in this lecture the following things are explained...
1) objectives of cash flow.
2) purpose and uses of cash flow.
3) methods to determine net cash flow
4)relation between different statements...
5) statement of retained earnings,
6) and a case study of D'Leon Inc.
7)security,debt security, equity security, amortization,accruals.
Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity (share), or a contractual right to receive or deliver cash (bond).
SmartPrep's teaching methodology ensures better learning through unique interactive teaching-learning sessions, conducted by our certified & highly qualified faculty members at our state-of-the -art centres spread across Delhi-NCR and other cities of India. SmartPrep has programs in Maths, Science, English, Accountancy and Economics for Classes VII to XII.
Solution Manual Advanced Accounting Chapter 15 9th Edition by BakerSaskia Ahmad
Solution Manual, Advanced Accounting, Thomas E. King, Cynthia Jeffrey, Richard E. Baker, Valdean C. Lembke, Theodore Christensen, David Cottrell, Richard Baker, Advanced Financial Accounting, Advanced Financial Accounting by Baker Chapter 18, Advanced Financial Accounting by Baker Chapter 18 9th Edition, 9th Edition,
statement of cash flow and statement of retained earnings.sabaAkhan47
its a lecture on statement of cash flow....in this lecture the following things are explained...
1) objectives of cash flow.
2) purpose and uses of cash flow.
3) methods to determine net cash flow
4)relation between different statements...
5) statement of retained earnings,
6) and a case study of D'Leon Inc.
7)security,debt security, equity security, amortization,accruals.
Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity (share), or a contractual right to receive or deliver cash (bond).
SmartPrep's teaching methodology ensures better learning through unique interactive teaching-learning sessions, conducted by our certified & highly qualified faculty members at our state-of-the -art centres spread across Delhi-NCR and other cities of India. SmartPrep has programs in Maths, Science, English, Accountancy and Economics for Classes VII to XII.
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WINDING UP of COMPANY, Modes of DissolutionKHURRAMWALI
Winding up, also known as liquidation, refers to the legal and financial process of dissolving a company. It involves ceasing operations, selling assets, settling debts, and ultimately removing the company from the official business registry.
Here's a breakdown of the key aspects of winding up:
Reasons for Winding Up:
Insolvency: This is the most common reason, where the company cannot pay its debts. Creditors may initiate a compulsory winding up to recover their dues.
Voluntary Closure: The owners may decide to close the company due to reasons like reaching business goals, facing losses, or merging with another company.
Deadlock: If shareholders or directors cannot agree on how to run the company, a court may order a winding up.
Types of Winding Up:
Voluntary Winding Up: This is initiated by the company's shareholders through a resolution passed by a majority vote. There are two main types:
Members' Voluntary Winding Up: The company is solvent (has enough assets to pay off its debts) and shareholders will receive any remaining assets after debts are settled.
Creditors' Voluntary Winding Up: The company is insolvent and creditors will be prioritized in receiving payment from the sale of assets.
Compulsory Winding Up: This is initiated by a court order, typically at the request of creditors, government agencies, or even by the company itself if it's insolvent.
Process of Winding Up:
Appointment of Liquidator: A qualified professional is appointed to oversee the winding-up process. They are responsible for selling assets, paying off debts, and distributing any remaining funds.
Cease Trading: The company stops its regular business operations.
Notification of Creditors: Creditors are informed about the winding up and invited to submit their claims.
Sale of Assets: The company's assets are sold to generate cash to pay off creditors.
Payment of Debts: Creditors are paid according to a set order of priority, with secured creditors receiving payment before unsecured creditors.
Distribution to Shareholders: If there are any remaining funds after all debts are settled, they are distributed to shareholders according to their ownership stake.
Dissolution: Once all claims are settled and distributions made, the company is officially dissolved and removed from the business register.
Impact of Winding Up:
Employees: Employees will likely lose their jobs during the winding-up process.
Creditors: Creditors may not recover their debts in full, especially if the company is insolvent.
Shareholders: Shareholders may not receive any payout if the company's debts exceed its assets.
Winding up is a complex legal and financial process that can have significant consequences for all parties involved. It's important to seek professional legal and financial advice when considering winding up a company.
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2. 2
Liquidation of Partnership
Meaning of Liquidation
Division of Losses & Gains
Distribution of Cash or Other Assets
Payments to Partners of an LLP
Explanation of different case scenarios
Illustrations & Case Studies
Preparation of Cash Distribution Program
Installment Payments to Partners
General Principles Guiding Installment Payments
3. 3
The Meaning of Liquidation
The LIQUIDATION of a limited liability partnership
means winding up its activities, usually by selling
assets, paying liabilities, and distributing any remaining
cash to the partners.
The partnership net assets may be sold as a unit or in
installments.
The cash received must be used to pay partnership
creditors.
The accounting records of the partnership should be
adjusted and closed and net income of loss for the final
period of operations entered in the capital accounts.
4. 4
Meaning of Liquidation
The liquidation usually starts with “Realization” of non-cash
assets.
Before any payments to partners, all outside creditors must
be paid in full.
An unpaid creditor may enforce collection from the personal
assets of any solvent partner whose actions caused the
partnership’s insolvency.
Partnership is treated as an entity for many purposes
however, it may not use the shield of a separate entity to
protect culpable partners’ personal assets against the
claims of unpaid creditors.
5. 5
Division of Loss and Gains
Always first divide the loss / gain from the realization of non-
cash assets before distributing cash.
As assets are realized, allocate any gains or loss to
partners’ capital accounts in the income-sharing ratio.
All creditors must have been paid before distribution of
cash.
The final credit balances of the partners’ capital & loan
ledger accounts should be equal to the cash available for
distribution.
Payments are then made in the amounts of the partners’
respective equities in the partnership.
6. 6
Distribution of Cash or Other
Assets
Payment of Creditors in full.
Payment of Loans from partners.
Payment of partners’ Capital Account Credit Balances.
If a partner’s capital account has a debit balance or
potential debit balance after possible future realization
of losses, then any credit balance in partner’s loan
account must be offset against the deficit in the capital
account. This is “Right of Offset”.
7. 7
Payments to Partners After All Non-
cash Assets Realized
Equity of Each Partners is Sufficient to Absorb Loss
from Realization.
Equity of One Partner is not Sufficient to Absorb that
Partner’s Share of Loss from Realization.
Equities of Two Partners are not Sufficient to Absorb
Their Shares of Loss from Realization.
Partnership is Insolvent but Partners are Solvent.
General Partnership is Insolvent and Partners are
Insolvent.
8. 8
Case 1:
Equity of One Partner Is Not Sufficient to Absorb
That Partner’s Share of Loss From Realization
The loss on realization of assets, when distributed in
the income-sharing ration, results in a debit balance in
the capital (or capital & loan combined) account of one
of the partners.
That partner must pay the deficit to the partnership.
If the partner is unable to do so, the deficit must be
absorbed by other partners as an additional loss to be
shared in the same proportion as they have previously
shared net income or losses.
9. 9
Case 1:
Balance Sheet of DE&F LLP (Prior to
Liquidation)
ASSETS
Cash $ 20,000
Other Assets $ 80,000
Total $ 100,000
LIABILITIES
Liabilities $ 30,000
D, Capital $ 40,000
E, Capital $ 21,000
F, Capital $ 9,000
Total $ 100,000
10. 10
Case 1:
Assumptions for the Illustration:
Income Sharing Ratio is D – 20%; E – 40%;
and F – 40%
The other assets of $ 80,000 realized $ 50,000
cash
Resulting loss of $ 30,000 from Realization
Partner F is charged with 40% of this loss ($
12,000)
Resulting deficit of $ 3,000 in F’s capital a/c
11. 11
Case 1:
Liabilities
Cash Other D (20%) E(40%) F(40%)
Balances Before Liquidation 20,000 80,000 30,000 40,000 21,000 9,000
Realization of Other Assets
@ loss of $30,000 50,000 (80,000) - (6,000) (12,000) (12,000)
Balances 70,000 - 30,000 34,000 9,000 (3,000)
Payments to Creditors (30,000) - (30,000) - - -
Balances 40,000 - - 34,000 9,000 (3,000)
Payment From F 3,000 - - - - 3,000
Balances 43,000 - - 34,000 9,000 -
Payments to Partners (43,000) - - (34,000) (9,000) -
Assets Partners' Capital
DE&F LLP
Statement of Realizatin & Liquidation
12. 12
Case 2:
Equities of Two Partners Are Not Sufficient To
Absorb Their Shares of Loss From Realization
Inability of a partner to pay the partnership for a
capital deficit may cause additional loss to the
other partners.
A partner may have sufficient capital (or
combination of capital & loan accounts) to absorb
any direct share of loss on the realization of non-
cash assets, but not sufficient to absorb additional
actual or potential losses caused by inability of the
partnership to collect the deficit in another
partner’s capital account.
13. 13
Case 2:
Assumptions for Illustration
JKL&M LLP is the partnership firm
The partners J, K, L & M share net income and
losses 10%, 20%, 30% and 40% respectively
Their capital account balances are as shown in
statement of realization and liquidation on next
slide
14. 14
Liabilities J (10%) K (20%) L (30%) M (40%)
Cash Other
Balances before Liquidation 20,000 200,000 120,000 30,000 32,000 30,000 8,000
Realization of Other Assets
@ loss of $ 80,000 120,000 (200,000) (8,000) (16,000) (24,000) (32,000)
Balances 140,000 120,000 22,000 16,000 6,000 (24,000)
Payments to Creditors (120,000) (120,000)
Balances 20,000 22,000 16,000 6,000 (24,000)
Payments to Partners (20,000) (16,000) (4,000)
Balances 6,000 12,000 6,000 (24,000)
Partners' Capital Accounts
Assets
Statement of Realization and Liquidation
J K L & M LLP
15. 15
Partnership Is Insolvent but
Partners Are Solvent
If a limited liability partnership is insolvent, it is
unable to pay all outside creditors, and at least
one and perhaps all of the partners will have
debit balances in their capital accounts.
The partnership creditors may demand payment
from any solvent partner whose actions caused
the partnership’s insolvency, regardless of
whether the partner’s capital account has a debit
balance or a credit balance.
16. 16
Installment Payments to Partners
Liquidation in installments means to realize
some assets, paying creditors, paying the
remaining available cash to partners, realizing
additional assets and making additional cash
payments to partners. The liquidation
continues until all non-cash assets are realized
and all cash has been distributed to creditors
and partners.
17. 17
General Principles Guiding
Installment Payments
Assume a total loss on all remaining non-cash
assets and provide for tall possible losses,
including potential liquidation costs and
unrecorded liabilities.
Assume that any partner with a potential
capital deficit will be unable to pay any thing to
the partnership.
Distribute each installment of cash as if no
more cash will be forthcoming.
18. 18
General Principles Guiding
Installment Payments
The liquidator should authorize a cash
payment to a partner only if that partner has a
capital account ( or capital & loan combined
account) credit balance enough to absorb a
portion of maximum possible loss that may
incur on realization.
19. 19
Cash Distribution Program
Why to have a Cash Distribution Program?
It’s more efficient to have in advance a
complete “Cash Distribution Program”
Ease, efficiency and accuracy of distributing
cash as soon as it’s available
20. 20
Cash Distribution Program
Procedure to develop Cash Distribution Program.
Determine the equity of each partner before liquidation.
Determine the capital per unit of income (loss) sharing
for each partner, by dividing capital account balance by
each partner’s income-sharing ratio.
If for some reason, original relationship among the
partners’ capital account balance has been disrupted, a
“Revised Cash Distribution Program” must be
prepared.
21. 21
Liquidation of Limited Partnerships
Most of the procedures & rulings of the liquidation of
LLPs and General Partnerships apply to the liquidation
of Limited Partnerships.
The Uniform Limited Partnership Act provides that after
outside creditors have been paid, the equities of the
limited partners must be paid before the general
partner(s) may receive any cash.
Limited partners may agree that one or more of them
may have priority over the others regarding payments
in liquidation of the limited partnership.