Question

Please answer each question clearly and accurately according to what is required. Also, each question must contain a maximum of 300 words......

a.Explain with the support of an illustration the process of termination and liquidation of a partnership? (With supportive example)

b.Discuss the role of trustee at the time of liquidation of the company and liquidation of company assets? (With supportive example)

Answer 1

1) The procedures involved in terminating and liquidating a partnership are basically mechanical. Four steps are involved in the liquidation process.

(1) Noncash assets are sold for cash and a gain or loss on liquidation is recorded.

(2) Gains or losses are allocated to the partners' capital accounts based on the partnership agreement or in equal shares.

(3) Liabilities of the partnership are paid.

(4) The remaining cash is distributed to the partners based on the balances left in their capital accounts.

Example

A and B have an partnership firm. They have land of Rs 500000 they shall sell the land as it is a non cash asset and the gain or loss on sale shall be distributed between A and B in partnership sharing ratio. This land could also be sold to the partner of the firm. The firm had an outstanding liabiity of 300000. This liability is required to be mandatorily paid before the liquidation. The remaining cash i.e 200000 (500000-300000) + 10000 (op cash balance) = 210000 shall be distributed to both the partners in profit sharing ratio.

2) The main function of a trustee or liquidator is to:

realise the assets of an individual in bankruptcy or a company in liquidation for the best possible price

distribute money to creditors in a strict order of priority

The trustee or liquidator has a duty to dispose of assets at the highest possible price to maximise the amount available for creditors A liquidator can take action against directors or former directors personally for the benefit of creditors. For example if the liquidator can show the directors continued to lose money when they knew the company could not recover they can be required to personally make payments to the liquidator for the creditors. The role of the Trustee is to take control of the business, sell the company's assets and distribute the proceeds to its creditors. The official receiver will frequently pass the liquidation process to an insolvency practitioner (IP)

Example : On Liquidation of Reliance Company , Rohan daliya is the trustee of the company he has to perform various roles such as sell the asset of the company in the maximum price as possible. He is required to appoint the IP. He is required to clear the dues of all types of creditors that is Financial. , Operational creditors.