partnership liquidation

Lump sum liquidation method requires that all assets are converted into cash, all liabilities are paid, and all profits and losses are charged to the partners, followed by a single distribution of cash.

•  t

• f

The process of removing the debit balance of a partner through his existing loan account is called exercising the right of off set.

• t

• f

Dissolution always results to liquidation.

• t

• f

Answer explanation

Dissolution does not always result to liquidation.

In liquidation, cash should be distributed first to outside creditors.

• t

• f

Gain or loss on realization is divided among the partners according to their capital contributions.

• t

• f

Answer explanation

according to P&L agreement instead of capital contributions

The loss absorption potential is the maximum loss each partner can absorb and which can eliminate him from any cash distribution.

• t

• f

In the partnership liquidation statement, assets are generally classified as cash and non-cash assets. 

• t

• f

Loss on realization and liquidation expense are allocated based on the profit and loss ratio and will decrease the partners’ capital accounts.

• t

• f

Under lump sum liquidation, the final cash distribution is made on the basis of the partners’ profit and loss sharing agreement.

• t

• f

Answer explanation

basis is partners’ ending capital balances and not based on the profit and loss sharing agreement

Payment of liabilities would not affect the capital balances of the partners.

• t

• f