Lecture_Partnership Liquidation (Concepts)

Partnership Liquidation

Winding up business by selling assets and settling debts.

Realization

Conversion of non-cash assets into cash.

Gain on Realization

Cash received exceeds non-cash asset's book value.

Loss on Realization

Cash received is less than non-cash asset's book value.

Solvent

Partnership can pay its debts as they come due.

Insolvent

Partnership cannot meet its financial obligations.

Lump-Sum Method

Under this method, all non-cash assets are realized, and the related gains or losses distributed, and all liabilities are paid before a single final cash distribution is made to the partners.

Installment Method

Under this method, realization of non-cash assets is accomplished over an extended period of time. When cash is available, creditors may be partially or full paid. Any excess may be distributed to the partners in accordance with a program of safe payments or a cash priority program. This process persists until all the non-cash assets are sold.