Accounting for Partnership

Amount that the heir or the estate will receive = 150,000/3
Compensation from insurance company = 50,000
70,000 baht
Balance of Capital – K A/C 3,250 baht
Adjusting entries of assets and liabilities No. 50,000 baht
Compensation from insurance company 105 24,000 baht
Profit sharing 204 147,250 baht
Total 301
The entries will be 302
303
General Journal Page…..…..

Year Transactions Debit Credit
MD 18,000 -
5,000 -
May 1 Inventories 3,250 -
3,250 -
Deferred Expenses 6,500 -
Capital – P
Capital – K
Capital – G
Adjust assets and liabilities of the
partnership, estimated profit sharing
to K

Cash 101 150,000 -
Capital – P 301
Capital – K 302 50,000 -
Capital – G 303 50,000 -
50,000 -
Compensation from insurance company

Estimated profit sharing 307 24,000 -
Capital – K 302
24,000 -
Profit sharing to the dead partner

Accounting for Partnership Page 142

Year General Journal A/C Debit Page…..…..
MD No. 24,000 - Credit
Transactions 307
302 24,000
Estimated profit sharing
Capital – K

Profit sharing to the dead partner

Capital – K 302 147,250 -
Cash 101
147,250 -
Capital repayment to the heir of the dead
partner

In case the entity does not make the repayment to the heir or the estate yet, the capital

account of the dead partner will be closed to the liabilities as follow.

General Journal Page…..…..

Year Transactions A/C Debit Credit
MD No.

May 1 Capital – K 302 147,250 -

Payable – K’s Heir / 204 147,250 -

Payable – K’s Estate

Close capital account of K to liabilities

2. Calculate the profit and loss allocated to the dead partner using the net profit and
loss of the year as of the period ending date. This method will prolong the repayment until the
period ending date. The entity will prepare the income statement and share the net profit or loss to
the dead partner at the profit and loss sharing ratio as normal:

Case 1 At the period ending date, the profit and loss will be shared to the dead partner and the
remaining partners like the procedures discussed in chapter 3

This method of profit and loss sharing (to the dead partner from the profit and loss of the year at

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the period ending date) considers that the capital of the dead partner is used in the operation for the

whole year. Therefore, the dead partner shall have rights in the profit and loss of the whole year.

Example 3. From example 1, assume that the entity agreed to share the profit and loss

from net profit of the year at the ending date – December 31, 25x1. The entity had net profit of

146,800 baht. The capital repayment would be on January 10, 25x2

The calculation will be

Profit and loss sharing ratios P : K : G = 1:1:2

Profit and loss sharing the partners would receive

Profit allocated to P = 146,800x1/4 = 36,700 baht

Profit allocated to K = 146,800x1/4 = 36,700 baht

Profit allocated to G = 146,800x2/4 = 73,400 baht

General Journal Page…..…..
Credit
25x1 Transactions A/C Debit
MD 146,800 - 36,700 -
No. 36,700 -
Dec 31 Profit and Loss 73,400 -
Capital – P 304
301
Capital – K 302
Capital - G 303
profit and loss allocated to partners

Capital – K (70,000+36,700) 302 106,700 -
Payable – K’s Heir / Estate 101
106,700 -
Close capital account of Pheng, transfer to 204
liabilities 101 106,700 -

25x2 106,700

Jan 10 Payable – K’s Heir / Estate
Cash

Capital repayment to the heir of the dead
partner

Accounting for Partnership Page 144

Case 2 Provision of interest on capital to the dead partner, from the date of death to the
period ending date, since the entity could not make the capital repayment to the heir or the
estate of the dead partner yet. Then the profit and loss sharing should be calculated from the
beginning date to the date of death.

Example 4. From example 3, assume provision of interest on capital at 6% per year from

the date of death to the ending date. The profit and loss sharing from the beginning date to the date

of death. Net profit of the year 25x3 was 146,800 baht.

The calculation will be

Interest on capital will be calculated during May 1 – Dec 31, 13 = 8 months

Interest on capital – K = 70,000 x 6% x 8/12

= 2,800 Baht

Net profit after interest on capital = 146,800 - 2,800

= 144,000 baht

Profit sharing to K calculate from Jan 1 – May 1, 13 = 4 months

Profit sharing to K for 4 months = 144,000 x 4/12 x 1/4

= 12,000 baht

Profit sharing to the remaining partners

Net profit after profit sharing to K = 144,000 -12,000

= 132,000 Baht

Profit sharing to P = 132,000 x 1/3 = 44,000 Baht

Profit sharing to G = 132,000 x 2/3 = 88,000 Baht

The entries will be

Accounting for Partnership Page 145

General Journal Page…..…..
Credit
25x1 Transactions A/C Debit
MD No. 2,800 - 2,800 -
505
Dec 31 Interest Payment 302
Capital – K

Interest on capital to K

Profit and Loss 304 2,800 -
Interest Payment 209
2,800 -
Close interest payment to profit and loss

Profit and Loss 304 144,000 -
Capital - P 301
Capital - K 302 44,000 -
Capital - G 303 12,000 -
88,000 -
profit and loss sharing

Capital – K (70,000+2,800+12,000) 302 84,800 -
Payable – K’s Heir / Estate 204
84,800 -
Close capital account of K to 204
liabilities 101 84,800 -

25x2 84,800 -

Jan 10 Payable – K’s Heir / Estate
Cash

Capital repayment to the heir of the dead
partner

Accounting for Partnership Page 146

Example 5. Gay, Aungkor and Keam were partners, as of January 1, 25x3 they had
capital of 80,000 baht, 80,000 baht and 70,000 baht respectively. They agreed to share profit and
loss at 6 : 7 : 5

During the year 25x3 the partners drew for personal use: Gay 5,000 baht, Aungkor 3,000
baht and Keam 5,000 baht.

Net profits of the last 3 years were 35,000 baht, 40,000 baht and 33,000 baht.
On November 1, 25x3 Gay died. The partners agreed not to liquidate the partnership but
to make capital repayment to the heir of Gay promptly in cash. The profit sharing to Gay to be
calculated from the average profit of the last 3 years, also goodwill to Gay at 5% of the net capital
after the profit sharing and draws.

Requirement 1. Calculate the profit sharing to Gay from average profit
2. Calculate the goodwill to Gay
3. Calculate the amount to be paid to the heir of Gay
4. Make entries in the general journal, together with the closing
of draws – Gay, and estimated profit sharing accounts

The Calculation will be: = 35,000 + 40,000 + 33,000
1. Calculation of profit sharing to Gay = 108,000
= 108,000 / 3
Total profit of the last 3 years = 36,000
= 10 Months
Average profit per year = 36,000 x 10/12 x 6/18
= 10,000
The period Gay was alive Jan 1 – Nov 1, 13
Average profit sharing to Gay

2 Calculation of goodwill to Gay

Goodwill to Gay at 5% of capital after profit sharing and draws

Capital – Gay = 80,000

Profit sharing = 10,000

Draws = 5,000

Goodwill to Gay = 5% (capital+profit sharing-draws)

Accounting for Partnership Page 147

5% x(80,000+10,000-5,000)
5%x85,000
4,250

3. Calculate the amount to be paid to the heir of Gay

Capital as of January 1, 25x1 = 80,000 Baht

Plus Average profit sharing 10,000

Goodwill 4,250 = 14,250

= 94,250

Less Draws = 5,000

Amount to be paid to Gay’s heir = 89,250

General Journal Page…..…..
Credit
25x1 Transactions A/C Debit
MD No. 10,000 - 10,000
307
Nov 1 Average Profit Sharing 301 4,250 -
Capital – Gay
107
average profit sharing to Gay 301
Goodwill
301
Capital – Gay 304 4,250
Goodwill to Gay

Capital - Gay 5,000 -
Draws - Gay
5,000
Close draws to capital account of Gay

Capital - Gay 301 89,250 89,250 -
Cash 101

Capital repayment to Gay’s heir

Profit and Loss 304 10,000 -
Average Profit Sharing 307 10,000 -

Close average profit sharing account Page 148

Accounting for Partnership

Summary

When an unlimited liability partner dies, the partnership agreement is terminated. Unless otherwise
stated in the partnership agreement, the partnership may not be dissolved. To continue the
operation, the partnership has to calculate the interest of the dead partner and make the capital
repayment to the rightful heir.

e-Learning Sources
www.dbd.go.th
www.fap.or.th
www.google.com

Learning Activities
1. Search and study from the Civil and Commercial Code – case of the capital repayment to

the dead partner
2. Discuss on the searched information

Accounting for Partnership Page 149

Chapter 8

Partnership Dissolution

Outline

1. Definition of partnership dissolution
2. Causes of partnership dissolution
3. Duties of the liquidator and cautions
4. Sequence of registering partnership liquidation
5. Forms and attachments required for registering partnership liquidation
6. Liquidation
7. Sequence and entries of liquidation
8. Liquidation and capital repayment

Learning Objectives

1. Able to tell the definition of partnership dissolution
2. Able to tell the causes of dissolution
3. Able to explain the duties of the liquidator and cautions
4. Able to tell the sequence of registering partnership liquidation
5. Able to name the forms and attachments required for registering partnership liquidation
6. Able to explain the liquidation
7. Able to explain the sequence and entries of liquidation
8. Able to explain the liquidation and make the entries of capital repayment
9. Having work habit of organized, careful, honesty, discipline, punctuality, and good attitude

towards the accounting profession

Accounting for Partnership Page 150

Chapter 8
Partnership Dissolution

Introduction

When all partners agree to dissolve the partnership, liquidators shall be appointed by majority,
or the managing partner shall be the ex officio liquidator. The liquidators request the liquidation, clears
all pending issues, carry out the liquidation and make the capital repayment to remaining partners.

TIP : The liquidators must request the completeness of liquidation within 14 days after the
resolution of the meeting

Definition of Partnership Dissolution

Dissolution of a partnership means the closure of a running partnership by liquidation and
make the capital repayment to all partners.

When all partners agree to dissolve the partnership, an agreement of dissolution should be
made in writing as an evidence. The sequence of dissolution should be proceeded as required by law,
request for liquidation of the partnership at the area office of the Company Limited and Partnership
Registration where the entity located.

Causes of Dissolution

The partnership may be dissolved from the following reasons:
1. All partners jointly require so or jointly agree as described in the agreement
2. Ruled by law. According to the Civil and Commercial Code, Sections 1055, 1056 and

1057:
Section 1055 An ordinary partnership is dissolved upon the following circumstances:
1) If the contract of partnership provides for any specific case of dissolution, upon the

occurrence of such case;
2) If the contract of partnership is made for a definite period of time, upon the expiration

of such period;

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3) If the contract of partnership is made specifically for a single undertaking, upon the
termination of such undertaking;

4) Upon any of the partners giving to the other partners due notice as provided by section
1056;

5) Upon the death of any partner or any partner becoming a bankrupt or an incompetent
person.

Section 1056 If a partnership is entered upon for any indefinite period, it can only be
terminated by a partner at the end of a financial year of the partnership; and such partner must give at
least six month’s notice of his intention to terminate.

Section 1057 An ordinary partnership may also be dissolved by the Court on application by a
partner in any of the following cases:

1) When a partner, other than the partner instituting an action, willfully or by gross
negligence, violates any essential obligation imposed upon him by the contract of partnership;

2) When the business of the partnership can only be carried on at a loss and there is no
prospect of its fortunes being retrieved;

3) When there is any other cause making the continuance of the partnership an
impossibility.

The partnership may not be dissolved if the cases meet the provisions of the Civil and
Commercial Code as follow:

Section 1058 Upon the occurrence of any event connected with one partner which, pursuant to
the provisions of section 1057 or section 1067, entitles the remaining partners to demand the
dissolution of the partnership, the Court may, upon the application of the remaining partners, order the
expulsion of the partner in question from the partnership instead of the dissolution thereof.

For the purpose of the division of property between the partnership and the expelled partner,
the partnership’s property must be assessed at the value at which it stood at the time when the
application for the expulsion was first made.

Section 1059 If, at the expiration of the period agreed upon, the business of the partnership is
continued by all the partners or by such of them as habitually managed it during the said period,
without any liquidation or settlement of accounts, the partners are deemed to have agreed to continue
the partnership for an indefinite period of time.

Section 1060 In any case specified in section 1055, sub-section 4) or 5), if the subsisting

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partner buy the share of the partner whose membership has ceased, the contract of partnership
continues between the subsisting partners.

Section 1092 A limited partnership is not dissolved by the death of one of the partners with
limited liability or by his becoming a bankrupt or an incompetent person, unless otherwise provided by
the contract

Section 1093 If a partner with limited liability dies, his heirs become partners in place, unless
otherwise provided by the contract.

With conclusion from the above provisions of the Civil and Commercial Code. The causes of
dissolution of partnership can be segmented as:

1. Dissolved as ruled by law
 If the contract of partnership provides for any specific case of dissolution,
upon the occurrence of such case
 If the contract of partnership is made specifically for a single undertaking,
upon the termination of such undertaking
 If any partner terminates at the end of a financial year of the partnership; and
such partner must give at least six month’s notice of his intention to terminate
 Upon the death of any partner or any partner becoming a bankrupt or an
incompetent person
 If the partnership becomes bankrupt
 If there remains only a partner

2. Dissolved by the requirement of partners
 If all partners agrees to terminate

 If any partner runs his business in competition with the partnership and other
partners vote for dissolution

3. Dissolved by the Court’s Order upon the application of a partner in any of the
following 3 cases:
 When a partner, willfully or by gross negligence, violates any essential
obligation of the contract of partnership
 When the business of the partnership can only be carried on at a loss
 When there is any other cause making the continuance of the partnership an
impossibility.

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Duties of the Liquidators and Cautions

The liquidators are obliged to carry out the liquidation. The responsibilities are as follow:
1. Settle the affairs of the partnership
2. Make newspaper publication, and inform the creditors within fourteen days from the date of

dissolution
3. Request the liquidation and the name of the liquidators within fourteen days to the department

of business development / the provincial office of the business development
4. Prepare the balance sheet and submit to the auditor
5. Arrange for a partners’ meeting to approve the balance sheet
6. Submit the liquidation report every three months
7. Gather and sell the assets, pay all liabilities
8. Petition to the court for an order of the partnership bankruptcy, if the liquidators find that after

the whole of the contributions has been paid up the assets are insufficient to meet the liabilities.
9. Summon a general meeting to present the liquidation report
10. Request for registering the completeness of liquidation within fourteen days from the date the

meeting has the resolution

Cautions for the liquidators

1. The liquidators shall notify the public by publication in a newspaper and inform the creditors
within fourteen days from the date of dissolution. Fail to do so is liable to a fine not exceeding
eighty thousand baht

2. The liquidators shall request for registering the completeness of liquidation within fourteen
days from the date the meeting has the resolution. Fail to do so is liable to a fine not exceeding
fifty thousand baht

3. The liquidators shall submit the liquidation report every three months after the dissolution.
Fail to do so is liable to a fine not exceeding fifty thousand baht

4. The liquidators shall request for registering the completeness of liquidation within fourteen
days from the date the meeting has the resolution. Fail to do so is liable to a fine not exceeding
fifty thousand baht

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Sequence of Requesting the Partnership Liquidation

In case all partners agree to dissolve the partnership, there are 8 steps regarding requesting the
partnership liquidation as follow:

1. All partners complete an agreement or contract of dissolution with the following detail:
- Location, date and the partners who enter into the agreement
- Agreement of dissolution, date of dissolution and the effective date of the agreement
- Appoint the liquidators and set the remuneration
- Appoint an auditor and set the remuneration
- Signatures of partners who enter into the agreement
- Signatures of 2 witnesses

2. The liquidators shall notify the public by publication twice at least in a local newspaper that the
partnership is dissolved, send a similar written notice by registered post to all creditors, and
request for registering the liquidation to the Registrar (of the company and partnership) within
14 days from the date of dissolution

3. Prepare a statement of financial position as of the date of dissolution and have it examined and
certified by the auditor as soon as possible

4. Once the auditor certified the statement of financial position, the liquidators shall summon a
general meeting to approve such statement of financial position, confirm the managing partner
as liquidator or appoint new liquidators instead.

5. The liquidators shall carry out the liquidation by making inventories, collecting the receivables,
paying the creditors, clearing the advance money and expenses the managing partner has paid
on behalf of the partnership. Any remaining property shall be capital repayment and profit
shared among the partners. (In case the assets are insufficient to meet the liabilities, the
liquidators shall apply to the Court to have the partnership declared bankrupt)

6. While the liquidation is not yet completed, the liquidators shall deposit the liquidation report
(form lor chor 3) to the registrar every 3 months. In case the liquidation continues for more
than 1 year, the liquidators shall summon a general meeting at the end of each year as from the
beginning of the liquidation to report the activities of liquidation

7. Once the affairs of the partnership are fully liquidated, the liquidators shall summon a general
meeting to approve the report of the liquidation.

8. When the report has been approved by the general meeting, the proceedings of the meeting

Accounting for Partnership Page 155

shall be registered with the registrar within 14 days from the date of the resolution by the
liquidators.

Forms and Attachments required for Registering the Partnership Liquidation

1. Form for requesting the liquidation (Form lor chor 1)
2. Form for the liquidation (Form lor chor 2) * signatures of all liquidators required
3. Attachments

3.1. Court’s order (In case the court ordered the dissolution)
3.2. Agreement of Partnership Dissolution (In case appointing other liquidators rather than the

managing partner)
4. Copy of Identification Card of the liquidators who sign the request
5. Copy of the notary public appointment (If any)
6. A letter of power of attorney (In case the applicants cannot apply of their own, they may

authorize other persons to act on their behalf. A letter of power of attorney with duty stamp is
required)
All forms may be bought at any office of the department of business development. The following
information are also required:
1. Date of dissolution
2. Name, address, occupation and age of the liquidators
3. The liquidators’ power and authority
4. The liquidation office
5. .01Taxpayer Identification Number of the partnership. In case the partnership did not apply for
the taxpayer ID number the field shall be enter ‘Null’

Schedule of Fee

The entity may have to pay for the registering of liquidation and certificate as follow

Registering the partnership liquidation 400 baht

Certificate fee, each 120 baht

Accounting for Partnership Page 156

Type of Request Form Form Form Attachments Registry Attachment
Form ลช. 2
Registry 1. Court’s order of dissolution (if any)
Registering of Form ลช. 1 2. Agreement of Dissolution made by
the
partnership all partners (in case the liquidators
liquidation are not the managing partner)
3. Copy of ID card of the liquidators
Registering of Form ลช 1 Form ลช.2 who sign the request
the 4. Copy of lawyer identification card or
modification evidence of membership of the Thai
of Bar Association of the notary public
partnership’s (if any)
liquidation 5. A letter of power of attorney (if any)
1. Court’s order of the change of
Registering of Form ลช 1 Form ลช.5 1. Form ลช. 3 and liquidators or liquidator’s power and
the attachments authority
completeness 2. Copy of ID card of the liquidators
of liquidation 2. Form ลช. 6 who sign the request
3. Copy of lawyer identification card or
evidence of membership of the Thai
Bar Association of the notary public
(if any)
4. A letter of power of attorney (if any)
1. Copy of ID card of the liquidators
who sign the request
2. Copy of lawyer identification card or
evidence of membership of the Thai
Bar Association of the notary public
(if any)
3. Certification of accounting audit
from the revenue department
4. A letter of power of attorney (if any)

Accounting for Partnership Page 157

Form for Requesting the Liquidation (Form ลช.1)

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Certificate

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Form for the Liquidation (Form ลช. 2)

Accounting for Partnership Page 160

Liquidation Report (Form ลช. 3)

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Form for the Completeness of Liquidation (Form ลช. 5)

Accounting for Partnership Page 162

Details of Account Book (Form ลช. 6)

Accounting for Partnership Page 163

Agreement of Dissolution

1. ………………………………..………………… Parnership

2. This agreement is made at …………………………..soi…………………………………………

Road ……………………………. District ……………………….. Sub district ……………………

Province ………………………… On the date of …………………………………….

Between the partners of this partnership, namely

1……………………………………………. 2…………………………………………….

3……………………………………………. 4…………………………………………….

3. All partners agree to dissolve the …………………………………. partnership, and enter into the

agreement as follow

(1) The ………………………. partnership shall be dissolved from the date of ………………..…

(2) Appoint ………………………….. as the liquidator of the partnership, whose remuneration is

Set for ……………………….. baht (……………..……………………………………….. )

(3) Appoint …………………………… , the certified public accountant, whose license

number …………… as the auditor for the partnership’s liquidation, whose remuneration is set

for …………….………. Baht ( ……………………………………………. )

(4) This agreement shall be effective from this date onwards

4. All partners signed / fingerprinted before witnesses

1……………………………………………. 2…………………………………………….

(………………………………………….) (………………………………………….)

3……………………………………………. 4…………………………………………….

(………………………………………….) (………………………………………….)

5……………………………………………. 6…………………………………………….

(………………………………………….) (………………………………………….)

5. I hereby certify that all partners signed and / or fingerprinted before me.

. …………………………………………………. ………………………………………………….

(…………………………………) witness (…………………………………) witness

Accounting for Partnership Page 164

Liquidation
After the partners agree for the partnership dissolution. They shall carry out the liquidation to

make capital repayment to the partners. In case of an un-registered ordinary partnership, the
dissolution shall be either with or without the liquidation.

Provisions of the Civil and Commercial Code rule the liquidation of a partnership as follow:
Section 1061 After the dissolution of a partnership, the liquidation shall be carried out,
unless some other method of adjustment of property between the partners has been agreed upon or
unless the partnership is adjudicated bankrupt.
If the dissolution is brought about by notice given by a creditor of one of the partners or by
the bankruptcy of one of the partners, the liquidation can only be dispensed with by the consent of the
creditor or of the official receiver.
The liquidation shall be carried out by all the partners or by other persons appointed by the
partners.
Section 1062 The liquidation shall be made in the following order:
(1) performance of all the obligations incurred towards third persons;
(2) reimbursement of advances made and expenses incurred by the partners in managing the
business of the partnership; and
(3) a return of the contributions made by each partner.
The balance, if any, shall be distributed as profit between the partners.
Section 1063 If, after the performance of the obligations incurred towards third persons and
reimbursement of advances and expenses, the assets are insufficient to return the whole of contributions
to the partners, the deficiency constitutes a loss which must be divided as such.
Section 1089 A partner with limited liability may be appointed as a liquidator of the
partnership.
Section 1094 If a partner with limited liability becomes bankrupt, his share in the
partnership must be sold as an asset of the bankruptcy.
Section 1095 As long as the registered partnership is not dissolved, creditors of the
partnership have no action against the partners with limited liability.
After the dissolution of such partnership, its creditors can enter actions against any partner with
limited liability up to the following amounts:

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(1) the part of the contribution of such partner which has not been delivered to the
partnership;

(2) such part of the contribution as the partner may have withdrawn from the asset of the
partnership; and

(3) dividends and interest with the partner may have received in bad faith and contrary to the
provisions of section 1084.

From above provisions of the Civil and Commercial Code, we may summarize that the
dissolution of a registered partnership, i.e. registered ordinary partnership or limited partnership
requires a settlement/liquidation. The liquidation can be carried out by all the partners or by other
persons appointed as liquidators. The sequence of liquidation shall be as follow:

Before the liquidation, the partnership shall make adjustment and close the accounts to get
the profit and loss of the last period. The profit and loss to be shared by the profit and loss sharing
ratios. The current accounts to be closed to the capital accounts of all partners, Dr current account –
partner and Cr capital – partner. Then the liquidation shall be carried out according to the sequence.

Sequence and Entries of the Liquidation

The liquidation can be summarized into 3 steps as follow:
1. Selling all assets of the partnership and sharing of the profit and loss from such sale
2. Paying liabilities

- External parties / costs and expenses incurred in the liquidation (if any)
- Internal parties / reimbursement of advances made and expenses incurred by the
partners in managing the business of the partnership
3. Capital repayment to each partner.
The procedures are:

1. Sale all assets.

Compare the book value and the amount realized, the difference will be profit or loss from
the sale of assets. Such difference shall be shared by the profit and loss sharing ratios, recorded in
parallel with the sale of assets. To be recorded in 2 cases:

1.1. Assets realized amount is more than the assets value. The difference is

profit from the sale of asset, allocated by the profit and loss sharing ratios and credit
the capital account of each partner

Accounting for Partnership Page 166

Dr. Cash XX
Cr. Assets XX
Capital - Partners XX

Entries of sale of assets and profit sharing

1.2. Assets realized amount is less than the asset value. The difference is loss

from the sale of asset, allocated by the profit and loss sharing ratios and debit the

capital account of each partner

Dr. Cash XX

Capital – Partners XX

Cr. Assets XX

Entries of sale of assets and loss sharing

Note Entries of sale of assets can be done by another method

1) Record the difference from sale of assets in the profit and loss from sale of

assets

Dr. Cash XX

Cr. Assets XX

Profit and loss from sale of assets XX

2) Record the sharing of profit and loss from sale of assets XX
Dr. profit and loss from sale of assets XX

Cr. Capital – Partners

2. Pay liabilities and expenses incurred in the liquidation (if any)

2.1. Pay all external/third party liabilities, the entries will be

Dr. liabilities XX

Cr. Cash XX

Accounting for Partnership Page 167

2.2. Pay the expenses incurred in the liquidation. These expenses shall be allocated to

all partners by the profit and loss sharing ratios, the entries will we

Dr. Capital – Partners XX

Cr. Cash XX

2.3. Reimbursement of advances made and expenses incurred by the partners in

managing the business of the partnership, such as loan payment. The entries will

be

Dr. Loan – Partners XX

Cr. Cash XX

Before the capital repayment. If any partner has capital account with debit balance, and also

has a loan account, the loan shall be transferred to absorb the debit balance first. If any portion of loan

remained, it will be paid before the capital repayment. But in case the loan amount is insufficient to

cover the debit balance, that partner shall make cash payment to the partnership. If that partner cannot

make such cash payment, other partners to be liable for the loss by the profit and loss sharing ratios of

the partners with credit balances in capital.

3. Make capital repayment to all partners according to the balance in capital

account.

The entries will be

Dr . Capital – Partners XX

Cr. Cash XX

When the affairs are fully liquidated, the liquidator shall prepare the statement of partnership
liquidation showing the detail of sale of assets, debt payment, and capital repayment to all partners.

Accounting for Partnership Page 168

Liquidation and Capital Repayment

The liquidation and capital repayment can be carried out in 2 methods

1. Liquidation of a Partnership After Complete Realization of Asset
Using this method, the assets will be sold, profit or loss from sale of assets will be allocated.

Then pay all liabilities of external and internal parties. The remaining cash will be for capital
repayment according to the balance in capital of each partner. This method can be done in 3 cases:

1.1 All partners’ capital account are sufficient to absorb their share of loss from
liquidation.

1.2 A partner’s capital account is insufficient to absorb his share of loss from

liquidation, segmented into:
1.2.1 A partner’s capital account is insufficient to absorb his loss from liquidation,

transfers his loan to absorb the deficit in the capital account.
1.2.2 A partner’s capital account is insufficient to absorb his loss from liquidation,

makes cash payment to absorb the deficit in the capital account.
1.2.3 A partner’s capital account is insufficient to absorb his loss from liquidation,

cannot cover the deficit in capital account
1.3 Sale of assets cannot cover the liabilities, segmented into

1.3.1 The partnership has not enough cash for all liabilities. The partners have
good financial status

1.3.2 The partnership has not enough cash for all liabilities. Some partners are
bankrupt

2. Liquidation of a Partnership by Installment

1. First sale of assets, allocate the profit and loss from the sale
2. Pay the liabilities and expenses in the liquidation
3. Each installment shall be handled like the last payment. The liquidator shall plan for
any possible loss incurred, to cover all cases to be mentioned afterward
4. Each installment required detailed calculation until the capital account of all
partners have the balances at the same ratios of the profit and loss sharing ratios. Then the repayment
will be according to the profit and loss sharing ratios, without detailed calculation attachment. Since
the balance in capital account of each partner can cover the possible loss sharing.

Accounting for Partnership Page 169

1. Liquidation of a Partnership After Complete Realization of Asset

1.1 All partners’ capital account are sufficient to absorb their share of loss
from liquidation.

There is loss from the sale of assets, the loss is allocated by profit and loss sharing ratios.
The capital balances are still with credit balance, the capital can be repaid.

Example 1 Saam Gler Partnership had 3 partners, Um, May and Nhum, they shared profit and loss
equally. After account closing and allocated the profit and loss, the three partners agreed to dissolve
the entity and carry out the liquidation. The statement of financial position of the partnership As on
January 1, 25x1 presented below:

Saam Gler Partnership

Statement of Financial Position

As on January 1, 25x1

Assets Liquidities and Partners’ Equity

Current Assets Current Liabilities

Cash 25,000 Account Payables 70,000

Account Receivables 80,000 Accrued expenses 9,000

Inventories 120,000 Partners’ Equity

Non-current Assets Capital - Um 130,000

Fixtures 300,000 Capital - May 116,000

Less Acc. Depre. 90,000 210,000 Capital - 110,000 356,000

Nhum

Total Assets 435,000 Total Liquidities and Partners’ Equity 435,000

For the liquidation, on January 31, 25x1, the date of dissolution, the entity collected 72,000
baht from receivables, inventories sold for 96,000 baht, and fixtures for 89,000 baht. After paying all
liabilities, the partnership made capital repayment to all partners.

Accounting for Partnership Page 170

Requirements 1. Prepare the statement of partnership liquidation
2. Make entries in the general journal

Calculation of profit and loss from the sale of assets: 410,000 baht
Net assets value (other than cash) 257,000 baht
Collection of receivables and sale of assets 153,000 baht
Loss from the sale of assets

Calculation of loss allocation from the sale of assets: 51,000 baht
Loss allocated to Um (153,000x1/3) = 51,000 baht
Loss allocated to May (153,000x1/3) = 51,000 baht
Loss allocated to Nhum (153,000x1/3) = 153,000 baht
Total

The statement of partnership liquidation will be

Saam Gler Partnership

Statement of Partnership Liquidation

As on January 31, 2014

Assets Liabilities Partners’ Equity

Description Cash Other Um May Nhum
Assets
Profit and Loss Sharing Ratio
1/3 1/3 1/3
Balance before liquidation
Sale of other assets, and 25,000 410,000 79,000 130,000 116,000 110,000
loss allocation from sale
257,000 (410,000) - (51,000) (51,000) (51,000)
Pay all third party liabilities 282,000 79,000 79,000 65,000 59,000
(79,000) (79,000) - - -
Capital Repayment to all partners 203,000 79,000 65,000 59,000
(203,000) (79,000) (65,000) (59,000)

Accounting for Partnership Page 171

The entries will be

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD
No.
Jan 31 Cash 257.000 -
Fixtures – Acc. Depreciation 101 90,000 -
Capital – Um 106 51,000 -
Capital – May 301 51,000 -
Capital – Nhum 302 51,000 -
Account Payables 303
Inventories 103 80,000
Fixtures 104 120,000
Sale of assets and loss allocation 105 300,000

Jan 31 Account Payables 201 70.000 -
Accrued expenses 204 9,000 -
Cash 301 79,000
Paid all third party liabilities
Capital – Um 301 79,000 -
Capital – May 302 65,000 -
Capital – Nhum 303 59,000 -
Cash 101 203,000
Capital repayment to all partners

Accounting for Partnership Page 172

Example 2 S, A and K were partners. Profit and loss to be shared at 1 : 2 : 2. After accounts closing
and shared profit and loss of the year, the statement of financial position of the partnership As on
December 31, 25x1 was:

S A K Partnership
Statement of Financial Position

As on December 31, 25x1

Assets Liquidities and Partners’ Equity
Current Assets
Current Liabilities
Cash
Account Receivables 48,000 Account Payables 125,000
Less Allowance for 5,000
90,000 Accrued expenses 20,000
doubtful account 9,000
Inventories Loan - S 190,000
Property, plant and equipment 200,000 340,000
Office Equipment 40,000 81,000
Less Acc Depreciation
51,000 Partners’ Equity
Total Assets
Capital – S 40,000

Capital – A 70,000

160,000 Capital – K 80,000

340,000 Total Liabilities and Partners’ Equity

For the liquidation on August 31, 2014, the liquidators sold assets as follow:

Aug 2 Inventories sold for 75,500 baht

9 Office Equipment sold for 175,500 baht

13 Receivables collected for 78,000 baht

Requirements 1. Calculation of profit and loss from the sale of assets

2. Prepare the statement of partnership liquidation

3. Make entries in general journal

Calculation of profit and loss from sale of assets will be

Assets Book Value Sale Value Profit (Loss)
24,500
Aug 2 Inventories 51,000 75,500 15,500
(3,000)
9 Office Equipment 160,000 175,500 37,000

13 Account Receivables (net) 81,000 78,000

292,000 329,000

Accounting for Partnership Page 173

Calculation of profit allocated to all partners

Profit allocated to S (37,000x1/5) = 7,400 baht
14,800 baht
Profit allocated to A (37,000x2/5) = 14,800 baht
37,000 baht
Profit allocated to K (37,000x2/5) =
Partners’ Equity
Total S AK

The statement of partnership liquidation will be 1/5 2/5 2/5
40,000 70,000 80,000
S A K Partnership
7,400 14,800 14,800
Statement of Partnership Liquidation 47,400 84,800 94,800

As on August 31, 2014 47,400 84,800 94,800

Description Assets Liabilities Loan - S 47,400 84,800 94,800
Cash Other Assets
(47,400) (84,800) (94,800)
Profit and Loss Sharing Ratio 48,000 292,000 130,000 20,000
Balance before liquidation 329,000 (292,000)
Sale of assets, and profit
allocation from sale

377,000 130,000 20,000
(130,000) (130,000)
Pay all third party liabilities

Loan-S payment 247,000 20,000
(20,000) (20,000)

Capital Repayment to all 227,000
partners (227,000)

Accounting for Partnership Page 174

The entries will be

General Journal Page…..…..

25x1 Transactions A/C Credit
MD Debit

No.

Aug 31 Cash 101 329,000 -
Allowance for doubtful account 104 9,000 -
Acc. Depreciation 107 40,000 -
Inventories 105 51,000 -
Account Receivables 103 90,000 -
Office Equipment 106 200,000 -
Capital - S 301 7,400 -
Capital - A 302 14,800 -
Capital - K 303 14,800 -
Sale of assets, profit sharing

Account Payables 201 125,000 -
Accrued expenses 204 5,000 -
101 130,000 -
Cash
Paid all third party liabilities

Loan – S 202 20,000 -
Cash 101 20,000 -

Pay loan – S

Capital – S 301 47,400 -
Capital – A 302 84,800 -
Capital – K 303 94,800 -
101 227,000 -
Cash
Capital Repayment to all partners

Accounting for Partnership Page 175

1.2 A partner’s capital account is insufficient to absorb his share of loss from

liquidation, segmented into:

1.2.1 A partner’s capital account is insufficient to absorb his share of loss
from liquidation, transfers loan to absorb the deficit in the capital
account

1.2.2 A partner’s capital account is insufficient to absorb his share of loss
from liquidation, makes cash payment to absorb the deficit in capital
account

1.2.3 A partner’s capital account is insufficient to absorb his share of loss
from liquidation, cannot contribute more cash to cover the deficit in
capital account

1.2.1 A partner’s capital account is insufficient to absorb his share of loss from

liquidation, he transfers loan to absorb the deficit in the capital account
In case the entity sells other assets for less than the book value. After allocation the loss to
all partners, the balance of some capital – partner may be insufficient to cover the loss, i.e. a debit
balance in capital. That partner may have a loan account which is like a creditor of the entity, he may
transfer the loan to absorb the deficit in his capital account.

Example 3 Daeng, Dum and Lek were partners, they shared the profit and loss equally. All the partner

agreed to dissolve the entity after the account closing and sharing of profit and loss. The trial balance

of the partnership before the liquidation is:

Cash 100,000.-

Other Assets 260,000.-

Liabilities 72,000.-

Loan – Daeng 20,000.-

Capital – Daeng 40,000.-

Capital – Dum 120,000.-

Capital – Lek 108,000.-

360,000.- 360,000.-

For the liquidation on March 31, 2014, the entity sold other assets for 125,000 baht. After sale
of assets and pay all liabilities will be the capital repayment. In case any partner has debit balance in

Accounting for Partnership Page 176

capital and has also a loan account, he may transfer the loan to cover the deficit.

Requirements 1. Prepare the statement of partnership liquidation

2. Make entries in general journal

Calculation of profit and loss from the sale of assets:

Book value of assets (except cash) 260,000 baht

Sale of assets 125,000 baht

Loss from the sale of assets 135,000 baht

Calculation of allocation of loss from the sale of assets:

Loss allocated to Daeng (135,000x1/3) = 45,000 baht
45,000 baht
Loss allocated to Dum (135,000x1/3) = 45,000 baht
135,000 baht
Loss allocated to Lek (135,000x1/3) =
Partners’ Equity
Total Daeng Dum Lek

The statement of partnership liquidation will be 1/5 2/5 2/5
40,000 120,000 108,000
Daeng Dum Lek Partnership
(45,000) (45,000) (45,000)
Statement of Partnership Liquidation (5,000) 75,000 63,000

As on March 31, 25x1 (5,000) 75,000 63,000

Description Assets Liabilities Loan - 5,000
75,000 63,000
Profit and Loss Sharing Ratio Cash Other Assets Daeng
Balance before liquidation (75,000) (63,000)
Sale of assets, and loss allocation 100,000 260,000 72,000 20,000
from sale
125,000 (260,000)
Pay all third party liabilities 225,000
(72,000) 72,000 20,000
Transfer loan-Daeng to cover 153,000 (72,000) 20,000
debit balance in capital
153,000 (5,000)
Loan payment and capital 15,000
repayment to all partners *
(153,000) (15,000)

* Loan payment and capital repayment can be done in parallel

Accounting for Partnership Page 177

The entries will be

General Journal Page…..…..

25x1 Transactions A/C Credit
MD Debit

No.

Mar 1 Cash 101 125,000 -
Capital – Daeng 301 45,000 -
Capital – Dum 302 45,000 -
Capital – Lek 303 45,000 -
Other Assets 105 260,000 -
Sale of assets and loss sharing

Liabilities 201 72,000 -
Cash 101 72,000 -

Paid all third party liabilities

Mar 1 Loan – Daeng 202 5,000 -
Capital – Daeng 301
5,000 -
Transfer loan to cover debit balance in capital

Loan – Daeng 202 15,000 -

Capital – Dum 302 75,000 -

Capital – Lek 303 63,000 -

Cash 101 153,000 -

Loan payment and capital repayment to the

partners

Accounting for Partnership Page 178

The following example is for the case the entity has expenses incurred in the liquidation.
Example 4 From example 2, assume S, A and K equally shared the profit and loss. After accounts
closing and sharing profit and loss of the year, the statement of financial position of the partnership is:

S A K Partnership
Statement of Financial Position

As on December 31, 2014

Assets Liquidities and Partners’ Equity

Current Assets Current Liabilities

Cash 48,000 Account Payables 125,000

Account Receivables 90,000 Accrued expenses 5,000

Less Allowance for 9,000 81,000 Loan - S 20,000

doubtful account

Inventories 51,000 Partners’ Equity

Property, plant and equipment Capital – S 40,000

Office Equipment 200,000 Capital – A 70,000

Less Acc Depreciation 40,000 160,000 Capital – Nhum 80,000 190,000
340,000
Total Assets 340,000 Total Liabilities and Partners’ Equity

For the liquidation on August 31, 2014, the sale of assets and the collection of receivables
totaled to 142,000 baht. The entity had expenses in the liquidation of 12,000 baht. After the payment
of liquidities will be the capital repayment. In case any partner had debit balance in capital and had
loan account, he could transfer the loan to cover the deficit.

Requirements 1. Calculation of profit and loss from the sale of assets and sharing of
loss

2. Prepare the statement of partnership liquidation
3. Make entries in general journal

Accounting for Partnership Page 179

Calculation of profit and loss from the sale of assets: = 260,000 baht
Book value of assets other than cash (340,000-48,000) = 142,000 baht
Sale of assets and collection of receivables = 150,000 baht
Loss from the sale of assets

Calculation of allocation of loss from the sale of assets:

Loss allocated to S (150,000x1/3) = 50,000 baht
50,000 baht
Loss allocated to A (150,000x1/3) = 50,000 baht
150,000 baht
Loss allocated to K (150,000x1/3) =

Total

The statement of partnership liquidation will be

S A K Partnership

Statement of Partnership Liquidation

As on August 31, 2014

Assets Partners’ Equity

Description Cash Other Liabilities Loan - S S AK
Assets
Profit and Loss Sharing Ratio 1/3 1/3 1/3
Balance before liquidation 48,000 292,000 130,000 20,000 40,000 70,000 80,000
Sale of assets, and loss
allocation from sale 142,000 (292,000) - (50,000) (50,000) (50,000)
(10,000) 20,000 30,000
190,000 130,000 20,000
(130,000) (130,000)
Pay all third party liabilities

Pay expenses in liquidation 60,000 20,000 (10,000) 20,000 30,000
(12,000) 20,000 (4,000) (4,000) (4,000)
Transfer Loan-S to cover debit 48,000 (14,000) (14,000) 16,000 26,000
balance in capital
14,000
48,000 6,000 16,000 26,000
(48,000) (6,000)
Loan payment and capital (16,000) (26,000)
repayment to partners

Accounting for Partnership Page 180

The entries in the general journal will be Page…..…..

General Journal

25x1 Transactions A/C Credit
MD Debit

No.

Aug 31 Cash 101 142,000 -
Allowance for doubtful account 104 9,000 -
Office Equipment - Acc. Depreciation 107 40,000 -
Capital - S 301 50,000 -
Capital - A 302 50,000 -
Capital - K 303 50,000 -
Account Receivables 103 90,000 -
Inventories 105 51,000 -
Office Equipment 106 200,000 -
Sale of assets, loss sharing

Account Payables 201 125,000 -
Accrued expenses 204 5,000 -
101 130,000 -
Cash
Pay all third party liabilities

Capital – S 301 4,000 -
Capital – A 302 4,000 -
Capital – K 303 4,000 -
101 12,000 -
Cash
Pay expenses in liquidation

Loan – S 202 6,000 -
Capital – A 302 16,000 -
Capital – K 303 26,000 -
101 48,000 -
Cash
Loan payment and capital repayment to all
partners

Accounting for Partnership Page 181

1.2.2 A partner’s capital account is insufficient to absorb his share of loss from
liquidation, he makes cash payment to cover the deficit in capital account

In case the entity sells other assets at loss, the capital – partner account may have debit balance
or insufficient to absorb the loss. Meanwhile, that partner has a loan account which is like a creditor of
the entity. He may transfer his loan to absorb the deficit in the capital account, resulted as smaller debit
balance in capital. That partner may contribute more cash to the partnership to cover such remaining
deficit. As shown in the example 5.

Example 5 Nong Nan Nuj Partnership had 3 partners, those were Nong, Nan and Nuj. The profit and
loss shared at 1 : 2 : 1. The partners agreed to dissolve the entity after account closing and sharing the
profit and loss of the period. The trial balance of Nong Nan Nuj Partnership As on March 31, 2014, the
date of dissolution were as follow:

Cash 140,000.- 40,000.-
Other Assets 650,000.- 20,000.-
Account Payables 300,000.-
Loan – Nan 790,000.- 180,000.-
Capital – Nong 250,000.-
Capital – Nan 790,000.-
Capital – Nuj

The entity sold other assets for 202,000 baht. After paying liabilities and loan, the entity made
the capital repayment to the partners. Any partner with debit balance in capital and had loan account
could transfer the loan to cover the deficit, if the loan was not enough then that partner might pay more
cash to cover the remaining deficit.

Requirements 1. Calculate the profit and loss from the sale of assets and sharing of
such profit and loss

2. Prepare the statement of partnership liquidation
3. Make entries in general journal

Accounting for Partnership Page 182

Calculation of profit and loss from the sale of assets: = 650,000 baht
Book value of assets = 202,000 baht
Sale of assets = 448,000 baht
Loss from the sale of assets

Calculation of allocation of loss from the sale of assets:

Loss allocated to Nong (448,000x1/4) = 112,000 baht

Loss allocated to Nam (448,000x2/4) = 224,000 baht

Loss allocated to Nuj (448,000x1/4) = 112,000 baht

Total 448,000 baht

The statement of partnership liquidation will be

Nong Nan Nuj Partnership

Statement of Partnership Liquidation

As on March 31, 2014

Assets Loan - Partners’ Equity
Nan
Description Cash Other Liabilities Nong Nan Nuj
Assets
Profit and Loss Sharing Ratio 1/4 2/4 1/4
Balance before liquidation 140,000 650,000 40,000 20,000 300,000 180,000 250,000
Sale of assets, and loss
allocation from sale 202,000 (650,000) - (112,000) (224,000) (112,000)
342,000 20,000 188,000 (44,000) 138,000
Pay all third party liabilities (40,000) 40,000
302,000 (40,000) 20,000 188,000 (44,000) 138,000
Transfer Loan-Nan to cover
debit balance in capital 302,000 (20,000)
188,000 (24,000) 138,000
Nan contributed more cash to
cover the deficit 24,000 188,000 24,000
(188,000)
Capital repayment to partners 326,000 138,000
(326,000) (138,000)

Accounting for Partnership Page 183

The entries in the general journal will be Page…..…..

General Journal

25x1 Transactions A/C Credit
MD Debit

No.

Mar 31 Cash 101 202,000 -
Capital – Nong 301 112,000 -
Capital – Nan 302 224,000 -
Capital – Nuj 303 112,000 -
Other Assets 105 650,000 -
Sale of assets, loss sharing

Account Payables 201 40,000 -
Cash 101 40,000 -

Pay all third party liabilities

Loan – Nan 202 20,000 - 20,000 -
Capital – Nan 302 -

Transfer loan to absorb the deficit in capital - Nan

Cash 101 24,000
Capital – Nan 302
24,000 -
Nan contributed more cash to cover the remaining
deficit

Capital – Nong 301 188,000 -
Capital – Nuj 303 138,000 -
101 326,000 -
Cash
Capital repayment to partners

Accounting for Partnership Page 184

1.2.3 A partner’s capital account is insufficient to absorb his share of loss from

liquidation, he cannot contribute more cash to cover the deficit in capital

account
In case the entity sells other assets at loss, the capital – partner account may have debit balance
or insufficient to absorb the loss. Meanwhile, that partner has a loan account which is like a creditor of
the entity. He may transfer his loan to cover the deficit in the capital account, resulted as smaller debit
balance in capital. That partner cannot contribute more cash to the partnership to cover such remaining
deficit. The loss in capital account of that partner will be allocated into the capital account of partners
with credit balance in capital. As shown in the example 6.
Example 6 From example 5, assume the partner with debit balance in capital could not contribute
more cash to cover the deficit in the capital account, could only transfer the loan to absorb some debit
balance in capital. The remaining debit balance in capital would allocate to other partners having credit
balances in capital.
Requirements 1. Calculate the profit and loss from the sale of assets and sharing of

such profit and loss
2. Prepare the statement of partnership liquidation
3. Make entries in general journal

Calculation of profit and loss from the sale of assets: = 650,000 baht
Book value of assets other than cash = 202,000 baht
Sale of assets = 448,000 baht
Loss from the sale of assets
= 112,000 baht
Calculation of allocation of loss from the sale of assets: = 224,000 baht
Loss allocated to Nong (448,000x1/4) = 112,000 baht
Loss allocated to Nam (448,000x2/4) 448,000 baht
Loss allocated to Nuj (448,000x1/4)
Total

Accounting for Partnership Page 185

The statement of partnership liquidation will be

Nong Nan Nuj Partnership

Statement of Partnership Liquidation

As on March 31, 2014

Assets Loan - Partners’ Equity
Nan Nong Nan Nuj
Description Cash Other Liabilities
Assets

Profit and Loss Sharing

Ratio 1/4 2/4 1/4

Balance before liquidation 140,000 650,000 40,000 20,000 300,000 180,000 250,000

Sale of assets, and loss

allocation from sale 202,000 (650,000) - (112,000) (224,000) (112,000)

342,000 40,000 20,000 188,000 (44,000) 138,000

Pay all third party

liabilities (40,000) (40,000)

302,000 20,000 188,000 (44,000) 138,000

Transfer Loan-Nan to

absorb debit balance in

capital (20,000)

302,000 188,000 (24,000) 138,000

Transfer deficit in capital –

Nan to Nong, Nuj (1 : 1) (12,000) 24,000 (12,000)

302,000 176,000 126,000

Capital repayment to

partners (302,000) (176,000) (126,000)

Accounting for Partnership Page 186

General Journal Page…..…..
Credit
25x1 Transactions A/C Debit
MD 650,000 -
No.
Mar 31 Cash 202,000 -
Capital – Nong 101 112,000 -
Capital – Nan 301 224,000 -
Capital – Nuj 302 112,000 -
Other Assets 303
Sale of assets, loss sharing 105

Account Payables 201 40,000 -
Cash 101
40,000 -
Pay all third party liabilities

Loan – Nan 202 20,000 - 20,000 -
Capital – Nan 302 24,000 -
-
Transfer loan to absorb the deficit in capital - Nan
12,000 -
Capital – Nong 301 12,000 -
Capital – Nuj 303
302
Capital – Nan
Transfer deficit in Nan’s capital to Nong and Nuj

Capital – Nong 301 176,000 -
Capital – Nuj 303 126,000 -
101
Cash 302,000 -
Capital repayment to partners

Accounting for Partnership Page 187

1.3 Sale of assets cannot cover the liabilities

For liquidation, sometime the entity may sell all assets at a low price, results in large amount of
loss. If the entity has very small cash balance, this may result in insolvency situation of the entity. The
creditors may sue to enforce compensation from private property of any unlimited liability partner
without limitation. Any partner shall pay all pending liabilities on behalf of the partnership, considered
as increase in his capital account. Such contribution will be repaid when the partner with debit balance
in capital pay more money to the partnership as his compensation. This may be segmented into 2 cases

1.3.1 The partnership has not enough cash for all liabilities. The partners have

good financial status
In case the partnership has insufficient cash to pay off all liabilities, a partner with good
financial status make the payment on behalf of the partnership. As in the example 7

Example 7 Noi, Nhong and Ning were partners. They shared the profit and loss at 2 : 1 : 2
respectively. After the account closing and sharing the profit and loss of the year, the statement of
financial position of the partnership As on June 30, 25x1, the date of dissolution, were:

Noi Nhong and Ning Partnership
Statement of Financial Position

As on June 30, 2014

Assets Liquidities and Partners’ Equity

Current Assets Current Liabilities

Cash 40,000 Account Payables 127,000

Account Receivables 80,000 Loan - Noi 15,000

Less Allowance for 8,000 72,000 Loan - S 20,000

doubtful account

Inventories 60,000 Partners’ Equity

Property, plant and equipment Capital – Noi 40,000

Office Equipment 200,000 Capital – Nhong 60,000

Less Acc Depreciation 40,000 160,000 Capital – Ning 90,000 190,000
332,000
Total Assets 332,000 Total Liabilities and Partners’ Equity

Accounting for Partnership Page 188

The liquidators sold all assets and collected the receivables for 84,000 baht. In case the

partnership was in insolvency situation, Nhong might pay off all liabilities on behalf of the

partnership. Any partner with debit balance in capital might transfer his loan (if any) to absorb the

debit balance, the remaining deficit may be cover by additional cash contribution to his capital account.

Calculation of profit and loss from the sale of assets:

Book value of assets (332,000-40,000) = 292,000 baht

Sale of assets and collection of receivables = 84,000 baht

Loss from the sale of assets = 208,000 baht

Calculation of allocation of loss from the sale of assets:

Loss allocated to Noi (208,000x2/5) = 83,200 baht

Loss allocated to Nhong (208,000x1/5) = 41,600 baht

Loss allocated to Ning (208,000x2/5) = 83,200 baht

Total loss allocation 208,000 baht

Noi Nhong Ning Partnership

Statement of Partnership Liquidation

As on June 30, 25x1

Assets Partners’ Equity

Description Cash Other Liabilities Loan – Noi Noi Nhong Ning
Assets
Profit and Loss Sharing Ratio 2/5 1/5 2/5
Balance before liquidation 40,000 292,000 127,000 15,000 40,000 60,000 90,000
Sale of assets, and loss
allocation from sale at 2:1:2 84,000 (292,000) - (83,200) (41,600) (83,200)

Pay third party liabilities 124,000 127,000 15,000 (43,200) 18,400 6,800
(124,000) (124,000) 15,000 (43,200) 18,400 6,800
Nhong pay the remaining
liability on behalf of the - 3,000
partnership
(3,000) 3,000

Transfer Noi’s loan to absorb 15,000 (43,200) 21,400 6,800
the debit balance (15,000) 15,000

Noi contributed more cash to 28,200 (28,200) 21,400 6,800
cover the debit balance 28,200

Capital repayment to partners 28,200 21,400 6,800
(28,200) (21,400) (6,800)

Accounting for Partnership Page 189

The entries in the general journal:

General Journal Page…..…..
Credit
25x1 Transactions A/C Debit
MD 80,000 -
No. 84,000 - 60,000 -
Jun 30 Cash 8,000 - 200,000 -
Allowance for doubtful account 101 40,000 -
Fixtures – Acc. Depreciation 104 83,200
Capaital – Noi 107 41,600 -
Capital – Nhong 301 83,200 -
Capital – Ning 302
Account Receivables 303
Inventories 103
Fixtures 105
Sale of assets, loss sharing 106

Account Payables 201 124,000 -
Cash 101 124,000

Paid third party liabilities, partially

Account Payables 201 3,000 -
Capital – Nhong 302 3,000 -

Nhong paid off the remaining liabilities on
behalf of the partnership

Loan – Noi 202 15,000 -
Capital – Noi 301 15,000 -

Transfer Noi’s loan to absorb debit balance in
capital (partially)

Cash 101 28,200 -
Capital – Noi 301 28,200 -

Noi contributed more cash to cover the
remaining debit balance in capital

Accounting for Partnership Page 190

General Journal Page…..…..
Credit
25x1 Transactions A/C Debit
MD 28,200 -
No. 21,400 -
Capital – Nhong 6,800 -
Capital - Ning 302
303
Cash 101
Capital repayment to partners

1.3.2 The partnership has not enough cash for all liabilities. Some partners are
bankrupt

In case the partnership has not enough cash for all liabilities, some partners are bankrupt. No
one can pay liabilities on behalf of the partnership. All remaining liabilities must be liable by all
partners, as in the example 8.

Example 8 From example 7, assume the partners were in bad financial status, no one could pay off the
liabilities on behalf of the partnership. The liabilities would be liable by all partners. Any partner with
debit balance in capital could not contributed more cash to cover such deficit. The statement of
partnership liquidation will be:

Accounting for Partnership Page 191