Chapter 6: Partnership Liquidation (Lump-Sum)  Partner’s Interest – the sum of a partner’s

capital, loan balance and advances to the

 Dissolution – the termination of a partnership partnership
as a going concern; it is the termination of the
life of partnership.
 Marshaling of Assets – involves the order of
creditor’ rights against the partnership’s assets
 Winding Up – the process of settling the and the personal assets of the individual
business or partnership affairs; it is partners.
synonymous to liquidation
 Insolvent Partner – a partner whose personal
 Termination – the point in time when all assets are less than his personal liabilities
partnership affairs are ended
 Solvent Partner – a partner whose personal
 Liquidation – the interval of time between assets are more than his personal liabilities
dissolution and termination of partnership
affairs; it is also the process of winding up a
 Free Interest – a partner’s capital interest that
business which normally consists of
is available for cash payment
conversion of assets into cash, payment of
liabilities and distribution of remaining cash
 Restricted Interest – a portion of a partner’s
among partners.
capital account balance that is restricted for
possible losses on liquidation. It is not,
 Realization – the process of converting non-
therefore, available for cash payment.
cash assets into cash

 Gain on Realization – the excess of the selling

price over the cost or book value of the assets
disposed or sold through realization

 Loss on Realization – the excess of the cost or

book value over the selling price of the assets
disposed or sold through realization

 Capital Deficiency – the excess of a partner’s

share on losses over his capital

 Deficient Partner – a partner with a debit

balance in his capital account after receiving
his share on the loss of realization

 Right of offset – the legal right to apply part

of all the amount owing to a partner on a loan
balance against deficiency in his capital
account resulting from losses in the process of
liquidation