Question & Answer: The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following account balances:…..

The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following account balances:
cash 90000 liabilities 60000

Noncash assets 300000 Henry capital 80000

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Isaac capital 110000

Jacobs capital 140000

Total 390000 Total 390000

Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and losses in a ratio of 2:4:4.

Before Liquidating any assets, the partners determined the amount of cash for safe payments and distributed it. The noncash asets were then sold for $120,000 and the liquidation expenses of $5,000 were paid. How much of the $120,000 would be distributed to the partners? (Hint Either a predistribution plan or a schedule of safe payments would be appropriate for solving this item.)

Expert Answer

Given facts:

1. The non cash assests worth 300,000 was sold for 120,000
Loss = 300000 – 120000
180000

2. This loss of 180000 will be divided in the ratio 2:4:4 between Henry, Isaac and Jacobs as per the given information

3. The ratio for distributing safe cash is computed with respect to each partner’s capital amount
ratio 8:11:14 between Henry, Isaac and Jacobs

4. Safe Cash calculation
Cash 90000 – current liabilities 60000
30000

5. The liquidation expenses of 5000 will also be shared in 2:4:4 ratio

6. Cash from Sale 120000 – liquidation expenses 5000 = 115000 will be distributed to partners
ratio 8:11:14 between Henry, Isaac and Jacobs

Particulars	Henry	Isaac	Jacobs

Capital	80000	110000	140000

Distribution of Safe Cash in the ratio 8:11:14	7273	10000	12727

Remaining Capital	72727	100000	127273

Sharing of loss 180000 in the given ratio of 2:4:4	36000	72000	72000

Remaining Capital	36727	28000	55273

Sharing of liquidation expenses 5000 in 2:4:4 ratio	1000	2000	2000

Remaining Capital	35727	26000	53273

Distributiion of 115,000 in ratio of 8:11:14	27879	38333	48788

Complete distribution of 120,000 (sale of non cash assets)
Particulars	Henry	Isaac	Jacobs

Sharing of liquidation expenses 5000 in 2:4:4 ratio	1000	2000	2000

Distributiion of 115,000 in ratio of 8:11:14	27879	38333	48788

Grand Total	28879	40333	50788

working

Particulars	Henry	Isaac	Jacobs

Capital	80000	110000	140000

Distribution of Safe Cash in the ratio 8:11:14	=(30000*(8/33))	=(30000*(11/33))	=(30000*(14/33))

Remaining Capital	=+B15-B17	=+C15-C17	=+D15-D17

Sharing of loss 180000 in the given ratio of 2:4:4	=(180000*(2/10))	=(180000*(4/10))	=(180000*(4/10))

Remaining Capital	=+B19-B21	=+C19-C21	=+D19-D21

Sharing of liquidation expenses 5000 in 2:4:4 ratio	=(5000*(2/10))	=(5000*(4/10))	=(5000*(4/10))

Remaining Capital	=+B23-B25	=+C23-C25	=+D23-D25

Distributiion of 115,000 in ratio of 8:11:14	=(115000*(8/33))	=(115000*(11/33))	=(115000*(14/33))

Complete distribution of 120,000 (sale of non cash assets)
Particulars	Henry	Isaac	Jacobs

Sharing of liquidation expenses 5000 in 2:4:4 ratio	=(5000*(2/10))	=(5000*(4/10))	=(5000*(4/10))

Distributiion of 115,000 in ratio of 8:11:14	=(115000*(8/33))	=(115000*(11/33))	=(115000*(14/33))

Grand Total	=+B4+B6	=+C4+C6	=+D4+D6

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