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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
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 |
