Chapter 14, Problem 9.4E

To determine

Concept Introduction:

Liquidation of partnership refers to the shutting of the firm i.e. putting end to the partnership business. This can be due to the death of any partner or on the closure of the business or any other reason. Sometimes, the liquidation takes place to initialize a new business entity with new partners.

The contribution of A towards the partnership liabilities in case of selling all assets for $\$135,000$ and after contribution of personal assets of partners having deficit capital balance towards those deficits considering the information of Case B.

Answer to Problem 9.4E

The partner A’s personal creditors will receive from the interest of A in partnership an amount of $\$3,200$ only.

Explanation of Solution

The partnership given in the question has three partners who are entitled to the equal profit sharing ratio. The capital balances of the three partners are:

Partner A has $\$34,000$ , Partner B has $\left(\$15,000\right)$ , and Partner C has $\$11,000$ .

The assets valued at $\$180,000$ for $\$135,000$ considering the information of Case B at the time of liquidation of the partnership.

Computation of capital surplus or deficit of partners at the time of liquidation:

Particulars	Cash	Other Assets	Liabilities	Capital A	Capital B	Capital C
Opening balance	$\$0$	$\$180,000$	$\$150,000$	$\$34,000$	$\left(\$15,000\right)$	$\$11,000$
Sale of assets	$\$135,000$	$\left(\$180,000\right)$	$\$0$	$\left(\$15,000\right)$	$\left(\$15,000\right)$	$\left(\$15,000\right)$
Payment of liabilities	$\left(\$135,000\right)$		$\left(\$135,000\right)$
Balances	$\$0$	$\$0$	$\$15,000$	$\$19,000$	$\left(\$30,000\right)$	$\left(\$4,000\right)$
Contribution by Partner B and C	$\$18,200$				$\$15,000$	$\$3,200$
Payment of liabilities	$\left(\$15,000\right)$		$\left(\$15,000\right)$
Balances	$\$3,200$	$\$0$	$\$0$	$\$19,000$	$\left(\$15,000\right)$	$\left(\$800\right)$

Now, the table for computing the amount of contribution by partner B against the deficit amount is as follows:

Particulars	Amount	$\%$ of total	Personal assets allocation
Partnership deficit	$\$30,000$	$33\%$	$\$15,000$
Personal Liabilities	$\$60,000$	$67\%$	$\$30,000$
Total	$\$90,000$		$\$45,000$

Hence, the amount of contribution by partner B towards capital deficit is $\$15,000$ .

The table for computing the amount of contribution by partner C against the deficit amount is as follows:

Particulars	Amount	$\%$ of total	Personal assets allocation
Partnership deficit	$\$4,000$	$10\%$	$\$3,200$
Personal Liabilities	$\$36,000$	$90\%$	$\$28,800$
Total	$\$40,000$		$\$32,000$

Hence, the amount of contribution by partner C towards capital deficit is $\$3,200$ .

As after compensating the deficit capital balances of partner B i.e. $\left(\$15,000\right)$ and partner C i.e. $\left(\$800\right)$ with the surplus balance of partner A i.e. $\$19,000$ , the balance remaining incapital with A is $\$3,200$ which is only available for the personal creditors of partner A.