Question

Nada, Aisha, Sarah and Khadija have decided to liquidate their partnership. At the time of liquidation the balance sheet was as follows:
Cash	12,000		Accounts payable	12,000
Noncash assets	190,000		Nada Capital	15,000
Total assets	202,000		Aisha Capital	75,000
			Sarah Capital	75,000
			Khadija Capital	25,000
			Total liabilities and capital	202,000
Partners Nada, Aisha, Sarah and Khadija share profits/losses according to the ratios 3:3:2:2.
During liquidation, the partners sold the noncash assets for 75,000, liabilities were settled and final cash distributions were made.
Also during liquidation, it was learned that partners Nada and Khadija were insolvent but the other partners were solvent.
Required:
1 - Provide the journal entry made when the noncash assets were sold
2 - State the amounts that were distributed to each partner in the final distribution

Answer 1

1. Journal Entries at the time of liquidation

Particulars	Debit($)	Credit($)
Cash A/c                                       Dr	75000
Nada's capital A/c                    Dr	34500
Aisha's capital A/c                    Dr	34500
Sarah's capital A/c                   Dr	23000
Khadija's capital A/c               Dr	23000
To Noncash Assets		190000
Record Sale of noncash assets at loss
Accounts Payable A/c            Dr	12000
To Cash		12000
Record payment to accounts payable
Aisha's capital A/c                    Dr	8358
Sarah's capital A/c                   Dr	5571
Khadija's capital A/c               Dr	5571
To Nada's capital		19500
Record deficiency of Nada's capital divided amongst rest partners (note2)
Aisha's capital A/c                    Dr	2142
Sarah's capital A/c                   Dr	1429
To Khadija's capital		3571
Record deficiency of Khadija's capital divided between solvent partners (note 3)
Aisha's capital A/c                    Dr	30000
Sarah's capital A/c                   Dr	45000
To Cash		75000
Final distribution of cash on basis of capital balances (note 4)

Note:1

Loss on sale of Assets to be allocated to partners in their profit-sharing ratio

Loss is $115,000 (Noncash assets $190,000 – realised value $75,000)

Nada - $115,000 x3/10 = 34,500

Aisha - $115,000 x3/10= 34,500

Sarah - $115,000 x2/10= 23,000

Khadija - $115,000 x2/10 = 23,000

Note 2- Deficiency of Nada’s to be divided amongst all other partners in their profit-sharing ratio = 3:2:2

Aisha - $19500 x3/7= 8358

Sarah - $19500 x2/7= 5571

Khadija - $19500 x2/7 = 5571

Note 3 - - Deficiency of Khadija’s to be divided between rest partners in their profit-sharing ratio = 3:2

Aisha - $3571 x3/5= 2142

Sarah - $3571 x2/5= 1429

Note 4

Upon liquidation, loss on sale of assets are divided into profit-sharing ratio, but the final cash distribution in based on capital balances.

2) State the amounts that were distributed to each partner in the final distribution

Final distribution to solvent partners

Aisha - $30,000 and Sarah - $45,000

Statement showing distribution of cash at Liquidation (amounts in $)

Particulars	Cash	Noncash Assets	Accounts Payable	Capital balances
Nada	Aisha	Sarah	Khadija
Balances	12000	190000	12000	15000	75000	75000	25000
Sale of Assets at loss of $115000	75000	-190000		-34500	-34500	-23000	-23000
Balance	87000	0	12000	-19500	40500	52000	2000
Payment to creditors	-12000		-12000
Balance	75000		0	-19500	40500	52000	2000
Distribution of Nada's capital	0			19500	-8358	-5571	-5571
Balance	75000			0	32142	46429	-3571
Distribution of Khadija's capital	0				-2142	-1429	3571
Balance	75000				30000	45000	0
Payment to partners	-75000				-30000	-45000
	0				0	0