Question

Atleast 300 words please.

How do we share partnership net income if there is no agreement as to each partner's share. What is liquidation? How does it differ from the dissolving (dissolution) of a partnership?

Answer 1

Answer : Sharing of income

The partnership agreement should include how the net income or loss will be allocated to the partners. If the agreement is silent or there is no agreement, the net income or loss is allocated equally to all partners.

Liquidation

Partnership liquidation is the process of closing the partnership and distributing its assets. The partnership liquidation process starts with the partnership selling off all of its noncash assets at auction. Most of the time these assets will create a loss because they will be sold for less than what the partnership purchased them for, but some assets, like building, can appreciate and be sold at a gain. Both the losses and gains from these sales are allocated to the partners’ capital accounts based on the partnership agreement.

Difference between liquidation and dissolution

When the relation between all the partners of the firm comes to an end, this is called dissolution of the firm. It implies the complete break down of the relation of partnership between all the partners.while, liquidation is the process of closing the partnership and distributing its assets. The partnership liquidation process starts with the partnership selling off all of its noncash assets at auction and liabilities are paid off.