In: Accounting
Villanueva and Santos are about to liquidate their partnership. They each have P200.000 capital balances and they share profit and losses in a 3:1 ratio, respectively. In addition, the partnership has P250,000 in cash, P450,000 non-cash assets, and P300,000 in accounts payable. Assuming that non-cash assets are sold for P170,000 and that both partners are personally solvent, prepare a statement of liquidation. VS Partnership Statement of Liquidation.
A. On December 31, 2019, the Modesto and Corpuz Partnership had the following assets, liabilities and partners' equity:
Assets = Liabilities + Modesto, CapitalCorpuz, Capital
1,200,000 = 150,000 + 600,000 450,000
When partners agreed to liquidate the business, the assets were sold for P900,000 and the liabilities were paid. Modesto and Corpuz share profits and losses in a 2:1 ratio, respectively.
Provide answers to the following questions:
1. How much is the gain or loss on sale of non-cash assets? Indicate the amount and whether it is a gain or loss.
2. How much is the share of Modesto in your answer in number 1?
3. How much is the share of Corpuz in your answer in number 1 ?
4. How much will Modesto receive as final cash settlement?
5. How much will Corpuz receive as final cash settlement?
1. On sale of Assets, Loss was incurred for Modesto and Corpuz Partnership as
Book Value of Assets = 12,00,000, but sold for 9,00,000. Hence the difference of 3,00,000 is treated as LOSS.
2. Total Loss Incurred- 3,00,000
Share of Loss between Modesto and Corpuz in the ratio of 2:1 which is as follows:
Modesto- 3,00,000 x 2/3 =2,00,000
Corpuz- 3,00,000 x 1/3 = 1,00,000
3. Final Cash Proceedings after selling Assets & clearing Liabilities:
Sale proceeds of Assets - Liabilities paid
=9,00,000-1,50,000
=7,50,000
This 7,50,000 is shared between the partners as per their updated balance in capital accounts, which is as follows:
in the ration of (6,00,000-2,00,000) : (4,50,000-1,00,000) between Modesto and Corpuz
i.e 4,00,000 : 3,50,000
4. Final Settlement of Modesto:
7,50,000 x 4,00,000/7,50,000 = 4,00,000
5. Final Settlement of Corpuz:
7,50,000 x 3,50,000/7,50,000 = 3,50,000