Question

Challenge: Vince, James, Albert and Kath are partners of a very successful auditing firm. However, due to disagreements in managing the firm, they decided to liquidate. The statement of financial position just before liquidation reports the following balances: Cash P50,000 Liabilities P375,000 Other assets 900,000 James, Loan 30,000 Kath, Loan 25,000 Vince, Capital (30%) 210,000 James, Capital (30%) 157,500 Albert, Capital (20%) 102,500 Kath, Capital (20%) 50.000 Total assets P950,000 Total Liabilities and Partners' Equity P950,000 The following is the summary of the realization and liquidation proceedings: Cash Book value Expenses Liabilities Cash withheld for realized of asset paid paid future liquidation realized expenses January 115,000 200,000 5,000 160,000 February 276,500 400,000 3,500 215,000 8,000 March 92,000 150,000 7,000 5,000 April 80,000 150,000 1. What is the balance of the cash account as of January 31, 2019? 2. How much is the loss on realization absorbed by Kath for January? 3. How much is the cash withheld for future liquidation expenses and unrecorded liabilities in the month of February? 4. How much cash did James receive as settlement of his interest in February? 5. How much is the maximum possible loss in the schedule of safe payment for the month of March? 6. How much is the total loss absorbed by all the partners in the entire course of liquidation?

complete solution

Answer 1

1. Cash account balance as on Jan 31 2019 is Nil. Since cash reallised 111500 + Cash Opening Balance 50,000 - Expenses paid 5000 - Liab paid 160000 = 5000

2. Loss on realisation absorbed by Kath for Jan = Book Value of assets realsied = 200000 - 115000 (Cash realised) = 85000 * 20% Kath = 17000

3. Cash Withheld in the month of Feb = Cash realised 276000 - Expenses paid 3500 - Liability paid 215000 = 58000 Cash Balance of which ...8000 reserved to Liquidation Expense and Hence net cash Balance = 50000

Total Cash With held for February = 58000

4. James did not receive any money as a settlement of his interest, but there is a cash balance of 50000 after withholding cash for liquidation expense 8000 and hence the same can be used to settle the loan of James and Kath proportionately. In the absence of information James has not received any settlement of his interest the company has only paid of the external liability to the tune of 375000 and hasn't given any information about the settlement of partner's loan.