Question

7. Question 2 Apple, Betty, and Pat have been partners for sixteen years. The partnership is being liquidated. In a liquidation, Apple’s share of partnership losses exceeds her capital account balance by $1,200,000. Moreover, she is unable to meet the deficit from her personal assets, and her partners shared the excess losses.

Can Apple be relieved of her liability to the partnership? Please explain.

Answer 1

ANSWER :

Partnership liquidation is the process of closing the partnership and distributing its assets. Here on completing the procees and passing the necessary accounting entries it is found that Apple's share of partnership losses excees her Capital account bt $ 1,200,000. If she had means normally she has to pay the amount to the partnership. But here her personal assets are not sufficient to pay it too. So the excess losses were shared by the other two partners.

Here she can be relieved of her liability to the partnership . But she is duty boud to compensate the other partners from whatever personal assets left with her. She has to liquidate the assets and give it to the other partners who suffered her losses.

For the other partners the shares suffered of Apple is not a revenue loss . It is a Capital loss for them ,