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Video instructions and help with filling out and completing Plan of liquidation requirements

Instructions and Help about Plan of liquidation requirements

Okay let's go ahead and talk about partnership liquidation and the topic of what's referred to as a schedule of safe payments when a partnership is to be liquidated the assets are converted to cash the liabilities are paid off and then the partners are paid their remaining capital balances now the liquidation process may take a great deal of time if the partnership wants to maximize the value they receive for their assets they don't simply want to have a fire sale right away I sell everything for the best price I can get that day you know they want to market it properly to appropriate customers and it might take a long time to convert all of the assets to cash in the meantime the partner is you know they're gonna want cash payments so they can pay their personal bills so they can invest in other enterprises so they're constantly going to be a clamoring for cash payments so at any point in time during a liquidation process will be faced with a question of can we give the partners any cash and if so who can get how much now let's assume we have the following trial balance for the ABC partnership we have $40,000 in cash and four hundred sixty thousand dollars in other non-cash assets for total assets of $500,000 we have liabilities of twenty thousand a has a capital bounce of 150,000 B has a capital bounce of 8,000 and C has a capital balance of 150,000 and let's go ahead and assume that a B and C share profits and losses in a 3 to 1 to 6 ratio so at this point can name any of the partners be given any cash and if so who can get how much now at this point we have $40,000 in cash and only $20,000 in liabilities creditors have first claim on the firm's assets so of the $40,000 in cash 20,000 has to be held back to satisfy the creditors that means we have $20,000 of cash that can be safely paid out to the partners this really does this is where the term safe payment comes from the question is which of our three partners should receive it now see has by far the largest capital balance so should see receive the money at the other extreme B has the smallest capital balance so should he be at the you know the end of the line when it comes time to pay out capital balances what we're going to do is work through a sort of worst case scenario first we're going to assume that all of the non-cash assets are worthless right now we've got four hundred and sixty thousand dollars in other assets and that going to get neck of the inventory probably plan equipment intangibles what-have-you and again we're going to assume those things are completely worthless and their will so there will be a four hundred sixty.

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