1. Liquidation of the Partnership
Chapter 13
Liquidation of the Partnership

2. LIQUIDATION OF A PARTNERSHIP
The liquidation of a partnership terminates the business.
To liquidate a partnership, follow these steps:
1. Sell noncash assets for cash and recognize any gain or loss on realization.
2. Allocate any gain or loss on realization to the partners based on their income ratios.
3. Pay partnership liabilities in cash.
4. Distribute remaining cash to partners based on their capital balances. 32

3. LIQUIDATION OF PARTNERSHIP
No capital deficiency
Capital deficiency
Partner with deficiency pays partnership
Partners with credit capital balances absorb deficiency in income sharing proportion

4. Example

5. Answer

6. Capital Deficiency Example
Cash: $5,000
A/R: $15,000
Inventory: $18,000
Equipment: $35,000
A/C Equipment: $8,000
Notes Payable: $15,000
A/P: $16,000
R. Aube, Capital: $15,000
P.Chordia, Capital : $17,800
W. Elliot, Capital: $1,200
The assets of Aube, Chordia and Elliot will be sold for $42,000

7. Answer