COLLEGE OF BUSINESS AND ACCOUNTANCY
MODULE 4
MODULE 4 OVERVIEW:
Welcome to Module 4 – PARTNERSHIP LIQUIDATION
In this module, we will discuss the causes of partnership dissolution and account for the effects
of partnership dissolution on the partnership equity. At the end of this module, you are going
to answer an assessment to apply the lessons you learned from this module.
MODULE 4 LEARNING OBJECTIVES:
By the end of this module, the students will be able to:
1. Enumerate the procedures in partnership liquidation
2. Journalize the entries pertinent to lump-sum and installment liquidation
3. Prepare the Statement of Liquidation with supporting schedules
2020-2021 Module Packets for AE 13 (Partnership & Corporation Accounting) | College of Commerce |
University of San Agustin, Iloilo City, 5000, Philippines Page 1 of 16
COLLEGE OF
BUSINESS AND
COURSE CONTENT FOR MODULE 4:
LECTURE DISCUSSIONS
PARTNERSHIP LIQUIDATION
• Liquidation is the termination of business operations or the winding up of affairs. It is a
process by which
a. the assets of the business are converted into cash,
b. the liabilities of the business are settled, and
c. any remaining amount is distributed to the owners.
TYPES OF PARTNERSHIP LIQUIDATION
1. Lump-sum liquidation – the partners’ claims are settled in a single, lump-sum payment
after all non-cash assets are realized and after all liabilities are settled.
2. Installment liquidation – the partners’ claims are settled on an installment basis as non-
cash assets are realized and as cash becomes available, but only after all liabilities are
fully settled.
2020-2021 Module Packets for AE 13 (Partnership & Corporation Accounting)| College of Commerce |
University of San Agustin, Iloilo City, 5000, Philippines Page 1 of 16
COLLEGE OF
BUSINESS AND
SETTLEMENT OF CLAIMS
The available cash of the partnership is used to settle claims in the following
descending order:
1. First, to outside creditors;
2. Second, to inside creditors (e.g., payables to partners);
3. Third, to owners’ interests
LUMPSUM vs INSTALLMENT LIQUIDATION
The following procedures shall be observed when accounting for lump-sum liquidation or
installment liquidation:
2020-2021 Module Packets for AE 13 (Partnership & Corporation Accounting)| College of Commerce |
University of San Agustin, Iloilo City, 5000, Philippines Page 2 of 16
COLLEGE OF
BUSINESS AND
MARSHALLING OF ASSETS
A partner who is solvent, shall be required to make additional contributions to settle any
deficiency in his capital balance, subject to the following order of priority over his personal
assets:
1. The partner’s separate creditors
2. The partnership creditors
3. To the other partners by way of contribution
4. The capital deficiency of an insolvent partner shall be offset to the capital credits of
the other partners.
2020-2021 Module Packets for AE 13 (Partnership & Corporation Accounting)| College of Commerce |
University of San Agustin, Iloilo City, 5000, Philippines Page 3 of 16
COLLEGE OF
BUSINESS AND
Illustration
LUMP-SUM METHOD
2020-2021 Module Packets for AE 13 (Partnership & Corporation Accounting)| College of Commerce |
University of San Agustin, Iloilo City, 5000, Philippines Page 4 of 16
COLLEGE OF
BUSINESS AND
Solution:
[Link] of Liquidation
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University of San Agustin, Iloilo City, 5000, Philippines Page 5 of 16
COLLEGE OF
BUSINESS AND
[Link] Entries
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University of San Agustin, Iloilo City, 5000, Philippines Page 6 of 16
COLLEGE OF
BUSINESS AND
INSTALLMENT METHOD
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University of San Agustin, Iloilo City, 5000, Philippines Page 7 of 16
COLLEGE OF
BUSINESS AND
2020-2021 Module Packets for AE 13 (Partnership & Corporation Accounting)| College of Commerce |
University of San Agustin, Iloilo City, 5000, Philippines Page 8 of 16
COLLEGE OF
BUSINESS AND
2020-2021 Module Packets for AE 13 (Partnership & Corporation Accounting)| College of Commerce |
University of San Agustin, Iloilo City, 5000, Philippines Page 9 of 16
COLLEGE OF
BUSINESS AND
2020-2021 Module Packets for AE 13 (Partnership & Corporation Accounting)| College of Commerce |
University of San Agustin, Iloilo City, 5000, Philippines Page 10 of 16
COLLEGE OF
BUSINESS AND
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University of San Agustin, Iloilo City, 5000, Philippines Page 11 of 16
COLLEGE OF
BUSINESS AND
Activity 4-1 Statement of Liquidation
2020-2021 Module Packets for AE 13 (Partnership & Corporation Accounting)| College of Commerce |
University of San Agustin, Iloilo City, 5000, Philippines Page 12 of 16
COLLEGE OF
BUSINESS AND
Activity 4-2
Activity 4-3 Multiple Choice Questions/Problems.
Summative Quiz- Module 4
2020-2021 Module Packets for AE 13 (Partnership & Corporation Accounting)| College of Commerce |
University of San Agustin, Iloilo City, 5000, Philippines Page 13 of 16
COLLEGE OF
BUSINESS AND
REFERENCES:
Aduana, Nick L. (2016). Partnership and Corporation
Accounting (A Procedural Approach). Quezon City:
C & E Publishing, Inc.
Ballada, Win Lu, Susan Ballada. (2019). Partnership
and Corporation Accounting. 21st Edition. Manila:
Domdane Publishers and Made Easy Books.
Guerrero, Pedro, Jose Peralta. (2017). Advanced
Accounting Principles and Procedural Applications
Volume 1. Manila: GIC Enterprises & Co., Inc. C.M
Recto Avenue.
Palma, Roberto. (2014). Basic Accounting 2:
Partnership and Corporation. First Edition. Manila:
Rex Book Store, Inc.
Printed Learning Resources Dayag, Antonio J. (2019). Advanced Financial
Accounting and Reporting (Theories & Problems).
2017 C.M. Recto Ave.: GIC Enterprises & Co., Inc.
Guerrero, Pedro P. (2017). Practical Accounting 2 –
CPA Examination –A Comprehensive Review and
Procedural Approach. 2017 CM. Recto Ave.: GIC
Enterprises & Co., Inc.
Mejorada, Nenita D. (2015). Advanced Accounting
Part 1. Makati, Metro Manila : Goodwill Trading
Co.,Inc.
Compilation of Philippine Accounting Standards
(PAS), Philippine Financial Reporting Standards
( PFRS), International Financial Reporting
Standards (IFRS).
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University of San Agustin, Iloilo City, 5000, Philippines Page 14 of 16
Partnership Liquidation. Retrieved from [Link] accounting/partnership-liquidation
COLLEGE OF
BUSINESS AND
Farhat’s Accounting Lectures. Introduction to Partnership Liquidation. Retrieved from [Link]
Mr. Accounting. AFAR: Partnership Liquidation (Lump Sum). Retrieved from [Link]
Mr. Accounting. AFAR: Partnership Liquidation (Installment). Retrieved from [Link]
Web and other Learning Resources
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University of San Agustin, Iloilo City, 5000, Philippines Page 15 of 16