PARTNERSHIP LIQUIDATION

Give the explanation of its answers or computation True or False:

1. Dissolution and liquidation are the same.

2. In the liquidation of a business, the business owners' claims are settled simultaneously with the creditors' claims.

Fact pattern

A partnership has total assets of P5 (all non-cash), total liabilities of P1, and the following capital balances: A, Capital (50%) P2 and B, Capital (50%) P2.

Scenario 1: Cash distributions to partners

3.The cash available for distribution to the partners is P3.

4. The loss on the sale is P2.

5. A's share in the final cash distribution is P1.

Scenario 2: Reconstruction of information

6. If the loss on the sale of the assets is P3, the sale proceeds must be P1.

7. If the cash available for distribution to the partners is P2, A's share is P1.

8. If the cash available for the partners' claims is P2, the sale proceeds must have been P1.

9. If A's share in the final cash distribution is P0.75, the loss on the sale of assets must have been P1.

10. If the assets are realized, and the liabilities are settled, at carrying amounts, B's share in the final distribution will be P1.

CORPORATE LIQUIDATION AND REORGANIZATION

TRUE or FALSE: Then explain

Fact pattern

Foot Corp. has total assets of P100 and total liabilities of P150. The assets are expected to be realized at an average of 90% of carrying amount. The expected net settlement amount of the liabilities is equal to carrying amount. Of the total liabilities, P60 represent secured and priority claims.

1. The "net free assets" are P40.

2. Unsecured non-priority creditors would expect to recover only one-third (1/3) of their claim.

3. Mr. A has a P30 loan receivable from Foot Corp. The loan is secured by an asset with a carrying amount of P10. Mr. B can expect payment of P21 on the loan.

4. Mr. B has a P15 note receivable from Foot Corp. The note is secured by an asset with a carrying amount of P10. Mr. B can expect payment of P11 on the note.

5. You are a major shareholder of Foot Corp. You own 70 out of the 100 outstanding ordinary shares with P1 par value per share. You can expect to recover nothing on the liquidation of Foot Corp.