Order Description;

This paper is for my advanced accounting course and are asked to pick a topic that we have covered in our course and discuss it. Our textbook is Advanced Financial Accounting: the 9th edition by Baker, Christensen, and Cottrell. The topic is chapter 16 on partnerships: Liquidation.


Partnerships Liquidation

A partnership business undergoes liquidation liquation process when partners resolve close the business and distributes the assets of the partnership. In many cases, partners resolve to liquidate with a primary purpose of venturing in new opportunities. However, there are other distinct reasons as to why partnership may be forced to undergo the process of liquidation. For instance, if the partnership business is declared bankrupt, partners would have limited options other than resolving to liquidate to pay of the debt.

Partners agreeing to go for liquidation have obligations of applying legal aspect, perform commotions and liquidation, engage in safe payment computations, familiarize with installment liquidations, make a comprehensive cash distribution schedule, and evaluating insolvency of the partnership. Liquidation can either be in form of a simple liquidation or installment liquidation. A simple liquidation involves disposing the entire assets of a business in bulk.

The liquidation aims at satisfying creditors claim before liquidating partners engage in distributing gains from disposed assets. On the other hand, installment liquidation, liquidating partners dispose non cash assets over a period of time to distribute the available cash. Partners resolving to go for voluntary liquidation have obligation to enter into a resolution even if the business is not solvent. On the other hand, if creditors compel partners to wind up the business, partner may have limited option of meeting creditors demand other than winding up.

The process of liquidation starts with disposing non cash assets through auction process despite the fact that they would create imminent loss to partners. Some partners may resolve to appoint a liquidator to carry out the process of liquidation. Disposing assets marks the legal aspect of partnership liquidation process. However, some fixed assets like land and building would create a good amount of financial resources. The amount of money collected through dispose of assets is directed to the capital amount of the partners. Installment method involves two primary aspects when liquidating obliged to use installment method. Partners should determine surplus cash at a given point. The second key aspect of the method is to determine partners entitled to receive the payment of the surplus cash.

Partners would then come up with a plan to settle all the liabilities accrued to the business. In many cases, liabilities of partnership businesses include debts due to creditors and lending institutions. Settling the liability is a highly regarded process that liquidating partners are obliged to give priority over other appropriations. The can be used to settle liabilities can come from either cash at hand or cash from assets disposal. Occasionally, partners are obliged to settle liabilities according to preferences of creditors. Partners would then distribute the remaining cash among themselves upon clearing the entire liabilities (.

Liquidating partners may have an option of going for safe payments in case the business the entire partners are insolvent. The option is available if partners resolve to distribute cash on a guarantee that the mount distributed would not need to be returned some days to come. The option is also available in case liquidating partner is assured that they are no existing liabilities accrued to the business. More assumption would include the partners would need additional cash to meet liquidation expenses and non-cash assets could lead to imminent losses.

Liquidating partners preferring to go for safe payments have a duty of determining advance payment amount. Additionally, partners have legal obligations preparing cash distribution. Partners primarily qualify for safe payment after clearing non-partners creditors. Safe payment remains invalid when capital balance of liquidating partners change beyond partner’s expectations. Secondly, if the safe payment may jeopardize partnership liquidation statement, liquidating partners would be exempted from going for safe payments. Thirdly, safe payments should not be accrued to timing of distributions connected to project timing.

Liquidating partners have responsibilities of computing safe payments the first step included adjusting capital account to determine the outstanding advances accrues to the partnership firm. Secondly, partners would have to assume that non-cash assets create losses. Therefore, they will have to plan on how to distribute losses among themselves. The next step entails planning to meet other loss contingencies (Baker 506).

The procedure involves distributing contingent loses to liquidating partners. Partners have exclusive obligations of redistributing losses accrued by partners. The procedure entails comprehensive adjustment of the profit and loss ratio. Liquidating partners have obligations of going for installment liquidations. The installment liquidations involve the process of distributing cash to partners in case the cash is available and if the partners realize gains. Solvent partners first receive cash ahead of insolvent partners.

The process of partnership liquidation is prone to some barriers. Occasionally, it may be impossible for partners to distribute cash in accordance to the profit and loss ratio. The major contributing facto the inconsistency is the fact that the balance of each capital account of each partner determines final cash distribution implying that profit and loss account may not apply in the case. Secondly, some partners incur deficits balances indicated in their capital accounts. In such a case, such partners are not entitled to receive cash set for distribution (Baker 508-510).

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