Before many went into sole propriertorship, he was in partnership with papa. The business went into difficulties and the assets of the business were in bad condition. This compelled the later to decide to go into fish farming, bringing an end to the partnership business. The following information related to their business before the liquidation process.

Cash $100,000

Non-cash assets $1,000,000

Liabilities $400,000

Mannys capital $400,000

Papas capital $300,000

Income and loss is shared on a 60% by 40% basis for Manny and papa respectively. The business was closed on a haste; therefore, non-cash assets were sold on a fire sale at $200,000. Any loses realized by the business will have to be paid by the individual partners.

1. Prepare the statement of partnership liquidation and pass necessary journal entries for all the activities.
2. What do you understand by inventory valuation systems, which method would you employ in a free world during times if inflation and why?