Illustration of Liquidation by Instalments
To illustrate the liquidation of a partnership by instalments, a typical problem is appended shown in summarized form.
Problem. A, B, and C, sharing profits in the ratios of 25%, 35%, and 40% respectively, decide to dissolve partnership and distribute the net assets by instalments as realized. A balance sheet as on the date of dissolution showed net worth of $100,000, in which A’s interest was $30,000, B’s $40,000, and C’s $30,000. The liquidator distributed a first instalment of $10,000, a second instalment of $8,250, a third instalment of $15,000, a fourth instalment of $16,750, and a final instalment of $30,000. Show the shares which each of the partners will have in the various instalments.
Solution
| Net Capital of the firm | A, 25% | ||
|---|---|---|---|
| Theoretical Distribution | Actual Distribution | ||
| Original Capital | $100,000.00 | $30,000.00 | $30,000.00 |
| First Instalment | 10,000.00 | ||
| Net Capital | $90,000.00 | 22,500.00 | |
| $ 7,500.00 | |||
| Instalment Deficiency | |||
| to be borne by A & B | 2,500.00 | 5,000.00 | |
| $25,000.00 | $25,000.00 | ||
| 2nd Instalment | 8,250.00 | ||
| Net Capital | $81,750.00 | 20,437.50 | |
| $ 4,562.50 | |||
| Instalment Deficiency | |||
| to be borne by A & B | 1,125.00 | 3,437.50 | |
| 3rd Instalment. | 15,000.00 | $21,562.50 | $21,562.50 |
| Net Capital | $66,750.00 | 16,687.50 | 4,875.00 |
| $16,687.50 | |||
| 4th Instalment | 16,750.00 | 4,187.50 | |
| Net Capital | $50,000.00 | $12,500.00 | |
| Final Instalment. | 30,000.00 | 7,500.00 | |
| Net Loss on Liquidation | $20,000.00 | $5,000.00 | |
| Net Capital of the firm | B, 35% | ||
|---|---|---|---|
| Theoretical Distribution | Actual Distribution | ||
| Original Capital | $100,000.00 | $40,000.00 | $40,000.00 |
| First Instalment | 10,000.00 | ||
| Net Capital | $90,000.00 | 31,500.00 | |
| $ 8,500.00 | |||
| Instalment Deficiency | |||
| to be borne by A & B | 3,500.00 | 5,000.00 | |
| $35,000.00 | $35,000.00 | ||
| 2nd Instalment | 8,250.00 | ||
| Net Capital | $81,750.00 | 28,612.50 | |
| $ 6,387.50 | |||
| Instalment Deficiency | |||
| to be borne by A & B | 1,575.00 | 4,812.50 | |
| 3rd Instalment. | 15,000.00 | $30,187.50 | $30,187.50 |
| Net Capital | $66,750.00 | 23,362.50 | 6,825.00 |
| $23,362.500 | |||
| 4th Instalment | 16,750.00 | 5,862.50 | |
| Net Capital | $50,000.00 | $17,500.00 | |
| Final Instalment. | 30,000.00 | 10,500.00 | |
| Net Loss on Liquidation | $20,000.00 | $7,000.00 | |
| Net Capital of the firm | C, 40% | ||
|---|---|---|---|
| Theoretical Distribution | Actual Distribution | ||
| Original Capital | $100,000.00 | $30,000.00 | $30,000.00 |
| First Instalment | 10,000.00 | ||
| Net Capital | $90,000.00 | 36,000.00 | |
| [78]$6,000.00 | |||
| Instalment Deficiency | |||
| to be borne by A & B | |||
| $30,000.00 | $30,000.00 | ||
| 2nd Instalment | 8,250.00 | ||
| Net Capital | $81,750.00 | 32,700.00 | |
| [79]$2,700.00 | |||
| Instalment Deficiency | |||
| to be borne by A & B | |||
| $30,000.00 | $30,000.00 | ||
| 3rd Instalment. | 15,000.00 | ||
| Net Capital | $66,750.00 | 26,700.00 | 3,300.00 |
| $26,700.00 | |||
| 4th Instalment | 16,750.00 | 6,700.00 | |
| Net Capital | $50,000.00 | $20,000.00 | |
| Final Instalment. | 30,000.00 | 12,000.00 | |
| Net Loss on Liquidation | $20,000.00 | $8,000.00 | |
APPENDIX A
PRACTICE WORK FOR STUDENT—
FIRST HALF-YEAR
Instead of the student’s practice work appearing at the close of each chapter of the text as in Volume I, it has seemed best in this volume to place this material in a separate appendix at the end of the text because of the impracticability of dividing the text matter into uniform sections with one or two chapters constituting a lesson assignment. In some classes more practice work may be undertaken than in others. The practice work is, however, laid out in fairly uniform portions and it is expected that the student will be able to handle one practice assignment for each hour of class work. Thus, if the lecture period is of two hours’ duration, two assignments of work should be set.
The practice work is given in three parts. Appendix A will be found to contain sufficient material for the first semester of approximately 30 hours of lecture work. This appendix, in the main, is comprised of a formal set of accounts relating to a manufacturing corporation, to be worked out with suitable blanks. A few miscellaneous problems bearing particularly on some portions of the text are also provided. Appendix A should be covered in connection with the first twenty-seven chapters of the text.