Tuesday, 24 June 2014
PARTNERSHIP CASH PRIORITY SCHEDULE
THIS CASH PRIORITY SCHEDULE IS ANOTHER TYPE OF SCHEDULE OF DISTRIBUTION OF CASH IN TIME OF LIQUIDATION OF PARTNERSHIP.
THIS CASH PRIORITY SCHEDULE OR PROGRAM IS CALLED REFERRED TO A PREDISTRIBUTION PLAN, OR ADVANCE PLAN FOR THE DISTRIBUTION OF CASH .
THIS PROGRAM OR SCHEDULES SPECIFIES THE ORDER OR SEQUENCE OF PRIORITY IN WHICH EACH PARTNER WILL PARTICIPATE IN THE CASH DISTRIBUTION AND THE AMOUNT OF EACH PARTNER WILL RECEIVE AS CASH BECOMES AVAILABLE.
THE PROCEDURE IN PREPARING THIS PLAN .
THE OBJECTIVE OF THIS PLAN IS TO DETERMINE THE SEQUENCE OF THE PARTNER AND THE AMOUNT OF CASH HE WILL RECEIVE WHEN A DISTRIBUTION OF CASH is MADE . .
TAKE NOTE THAT THE PROFIT SHARING RATIO IS NOT AUTOMATICALLY THE RATIO OF THEIR CAPITAL TO TOTAL CAPITAL.
THE MOMENT THEIR CAPITAL RATIO BECOMES OR THE SAME WITH THEIR PROFIT AND LOSS SHARING RATIO, there will be NO PARTNER that will unduly absorb the cash distribution or the loss because their sharing ratio is the same with their capital..
THE FOLLOWING STEPS.
FIRST. 1. COMPUTE or get the total of EQUITY OR INTEREST OF EACH PARTNER BY COMBINING THE CAPITAL, THE LOANS PAYABLE LESS THE ADVANCES FOR RECEIVABLE . THIS IS NORMALLY GIVEN BASED ON THE BALANCE SHEET.
SECOND 2 . DIVIDE THE EQUITY IN NO1 OF EACH PARTNER AS AGAINST HIS PROFIT SHARING RATIO. THE ANSWER IS AN AMOUNT OF A TOTAL LOSS THAT WHEN INCURRED BY THE FIRM , THE PARTNER SHARE TO THAT LOSS IS EQUAL TO HIS CAPITAL. THAT AMOUNT ALSO MAY REPRESENT THE SUPPOSED TOTAL CAPITAL OF THE PARTNERSHIP . EACH PARTNER WILL HAVE THIS SUPPOSED TOTAL CAPITAL. THT MEANS IN CASE THE LOSS ON REALIZATION IS EQUIVALENT TO THAT SUPPOSED CAPITAL , THE CAPITAL OF THAT PARTNER CAN ABSORB SUCH LOSS.
EXAMPLE.
YOUR CAPITAL IS 20,000 , YOU SHARE RATIO IS 20%
DIVIDE 20,000 BY 20% IS 100,000, WHICH IS THE POSSIBLE LOSS TO HAPPEN, WHICH If MULTIPLIED BY YOUR SHARE OF 20% WOULD EQUAL TO 20,000, WHICH IS EXACTLY COVERED BY YOUR CAPITAL OF 20,000.00
EACH PARTNER WILL HAVE ITS OWN AMOUNT of absorption capability THAT WHEN MULTIPLIED BY HIS SHARE WILL EQUAL TO HIS CAPITAL.
THAT AMOUNT NORMALLY VARIES FOR EACH PARTNER , DEFINITELY THERE WILL BE AN ABSORPTION CAPACITY WHICH IS BIGGEST , THE SECOND, THE THIRD , THE FOURTH SO ON SO FORTH . THE PARTNER WILL THE HIGHEST ABSORPTION CAPABILITY WILL NATURALLY RECEIVE THE FIRST DISTRIBUTION OF CASH AFTER THE OUTSIDERS CLAIM. . THE PARTNER WITH THE LOWEST ABSORPTION POTENTIAL WILL BE THE LAST PARTNER TO RECEIVE DISTRIBUTION.
THIRD 3. THE PARTNER WILL THE HIGHEST ABSORPTION LOSS POTENTIAL SHALL HIS CAPITAL BE BROUGHT EQUAL TO THE NEXT HIGHEST ABSORPTION LOSS POTENTIAL, THAT MEANS AN AMOUNT SHALL BE DEDUCTED FROM THE ABSORPTION AMOUNT OF THE HIGHEST PARTNER AND ADD IT TO THE NEXT HIGHEST PARTNER.to bring their adjusted capital at same amount. that amount is the edge of the highest against the next higher IN TERMS OF ABSORPTION CAPACITY , that means this amount represent an amount subject to cash distribution for the highest partner using his profit share ratio. the second highest now has the same amount of absorption with the highest. Now since the third highest has a smaller absorption amount, compared to IST AND SECOND, now to equal that absorption amount the difference in their absorption amount shall be deducted from the IST TO THE SECOND.. THAT DIFFERIATIAL AMOUNT NOW IS THE EDGE OF IST AND SECOND OVER THE THIRD, THIS IS NOW THE AMOUNT TO BE APPLIED BY THEIR PROFIT RATIO TO OBTAIN THE AMOUNT OF THIER SHARE IN THE CASH DISTRIBUTION. NOW, THE IST, 2ND , 3RD HAVE ALREADY HAVE AN EQUAL ABSORPTION AMOUNT. NOW , THE FOURTH ABSORPTION AMOUNT OF THE 4TH PARTNER IS AGAIN DIFFERENT WITH THE IST , 2ND , 3RD.,, , DEDUCT FROM IST, 2ND, 3RD THAT DIFFERENCE OF ABSORPTION . THIS PROCESS CONTINUES UP TO THE LAST PARTNER.
IF YOU WILL IMAGINE, IF THERE ARE 4 PARTNERS, THREE PARTNERS WILL HAVE THE SAME ABSORPTION DIFFERENCE AT THE END OF THIS PROCESS COMPARED WITH LAST PARTNER AND THIS DIFFERENCE SHALL BE THE AMOUNT TO BE MULITPLIED T THEIR PROFIT SHARE RATIO TO OBTAIN THE ALLOCATED CASH FOR THEM.FOR THIS LAST 3RD STAGE..
THERE ARE THREE STAGES IF THERE ARE 4 PARTNERS:
1. DIFFERENCE BETWEEN ist and 2nd X PROFIT RATIO OF FIRST-=his INITIAL cash
2. DIFFENCE BETWEEN IST, and 3rd, then difference between 2nd and third x their ratio
3. difference between ist and 4th, then 2nd and 4th, then 3rd and 4th
IN THIS PROCESS, YOU WILL KNOW HOW MUCH INITIAL CASH CAN BE RECEIVED BY THE FIRST , THE SECOND AND THE THIRD OR THE SECOND TO THE LAST PARTNER. THAT TOTAL AMOUNT TO BE RECEIVED BY THE PARTNERS BASED ON THIS CASH PRIORITY PROGRAM IS THE MINIMUM AMOUNT THAT THEY WILL HAVE IN CASE THE CASH TO BE DISTRIBUTED IS MORE THAN THIS AMOUNT . EXAMPLE IF THE CASH AVAILABLE IS 86,000 , AND THIS CASH PRIORITY PROGRAM COMPUTED IS 86,000 , THEN THIS IS ALREADY THE AMOUNT TO BE DISTRIBUTED TO THE PARTNERS, BUT IN CASE THE AVAILABLE CASH IS MORE THAN 86,000 , THE EXCESS FROM 86,000 SHALL BE MULTIPLIED TO THEIR INDIVIDUAL PROFIT SHARE RATIO , TO INCLUDE THE LAST PARTNER.
IF HOWEVER THE TOTAL CASH THE PARTNERS ARE ENTITLED IN THE CASH PROGRAM IS BIGGER THAN THE ACTUAL OF CASH TO BE DISTRIBUTED , THEN THE SEQUENCE OF PRIORITY TO THAT CASH AVAILABLE IS:
FIRST DEDUCT THE ACCTS PAYABLE FROM THAT AVAILABLE CASH.
1. THE AMOUNT ENTITLED TO THE FIRST PARTNERS SHALL BE GIVEN TO HIM.
2, ANY EXCESS OF THE CASH OVER THE NO. 1, SHALL BE GIVEN TO SECOND PARTNER AND TO THE IST PARTNERS AS PER THE CASH PRIORITY PROGRAM.
EXAMPLE:
IF THE AMOUNT OF CASH IS SMALLER THAN THE ONE INT HE CASH PROGRAM , SAY 5000 AND CASH PROGRAM IS 16925 AND THE OUTSIDE LIABILITES 500, THE FF IS THE DISTRIBUTION. assuming partner 1 shares 50% , partner 2 40%, , partner 3 10%
CASH PRIORITY PROGRAM SCHEDULE
LIAB. IST 2ND 3RD TOTAL
partner partner partner
ist priority 10,000 10000
2nd 2000 1000 3000
3rd priority 2000 1000 925 3925
total 16925
BUT THE CASH IS ONLY 14,000 . AND LIABILITIES IS 500.00
DISTRIBUTION OF CASH
LIAB IST PARTNER 2ND PART 3RD PARTNER TOTAL
500 500
ist to receive 10,000 10,000
2000 1000 3000
sub total 500 12000 1000 13500
bal used share ratio 250 200 50 500
TOTAL 500 12250 2,200 50 14000
TAKE NOTE THAT ANY CASH TO BE DISTRIBUTED TO THE PARTNERS, THEY MUST FIRST APPLY THAT TO ANY LOANS PAYABLE TO THEM BY THE FIRM
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PROBLEM:
THE FOLLOWING BALANCE SHEETS OF GORIO , RUBEN, LEVI , TRECY, WITH 40%, 35%, 15%, 10% SHARE RATIO.
CASH 14,000
NON CASH 357,700
ACCOUNTS PAYABLE 13,600
LOANS PAYABLE GORIO 25,000
LOANS PAY RUBEN 42000
GORIO CAP 84000
RUBEN 90000
LEVI CAP 75000
TRECY CAP 42100
TOTAL 371700 371700
REQUIRED:
CASH OF 53.000 IS AVAILABLE TO CREDITORS AND PARTNERS. PREPARE CASH PRIORITY PROGRAM.
CASH PRIORITY PROGRAM
GORIO RUBEN LEVI TRECY
CAPITAL 84000 90,000 75000 42100
LOANS 25000 42000
TOTAL 109000 132000 75000 42100
ABSORPTION ABILITy 272500 377142 500,000 421000
BETWEEN levi and trecy 79,000 x 15% 11850
total 272500 377142 421000 421000
between levi and rub 43858 X15% 6578.70
between trecy and rube 43858 x 10% 4,385.8
balance 272500 377142 377142 377142
between levi and gorio 104642 x 15 15696.30
between trecy and 104642x 10% 10464.20
between ruben and gorio 104642 x35% 36624.7
balances 272500 272500 272500 272500
for LEVI 11,850, 7578.70 . 15606.40 34125
FOR TRECY 4358.80, `10464.20 14850
FOR RUBEN 36624.70 36624.7
TOTAL AMOUNT OF 85,599.70, IS THE AMOUNT OF CASH OUTLAY FOR THE THREE PARTNERS IN CASE A CASH IS AVAILABLE FOR DISTRIBUTION. of course from the available cash , the liabilities for outsider must be deducted to arrive at the cash available for distribution.. in the even that THE CASH AVAILABLE less liabilities IS LESSER THAN 85,599.70. of course apply first the share of the FIRST PARTNER, IF STILL SUFFICIENT TO COVER THE SECOND PRIORITY ,APPLY THAT AMOUNT, IF NOT SUFFICIENT , THEN APPLY THEIR SHARING RATIO OF WHOEVER IS ENTITLED ON THE REMAINING OF THE CASH FOR DISTRIBUTION..
using the data given.
LIAB. LOAN LEVI TRECY RUBEN
RUBEN
FULL 13600 13600
LEVI ONLY 11850 11850
LEVI AND TRECY 7578.70 4358.80 11937.50
balance PRO RATA 9107.29 3903.12 2602.09 15612.50
TOTAL 13600 9107.29 13903.12 14823.00 53000
TAKE NOTE THAT ON THE THIRD TRANCE , THE BALANCE LEFT TO DISTRIBUTE IS ONLY 15,612.50 WHILE ON THE PROGRAM , STILL THERE IS 36624.70. THE 15612.70 MUST BE SHARED BASED ON THE SHARE RATIO OF THE THREE PARTNERS.
ruben 35/60 = 58.33% X 15612.70 = 9107.29
levi 15/60 25% -=3903.12
TRECY 10/60 = 16.67% = 2602.09
RUBEN WILL NOT SHARE UNTIL THE CASH TO DISTRIBUTE REACHED 85,599.70, GORIO WILL HAVE A SHARE ONLY IN EXCESS OF 85599.70
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
ANOTHER PROBLEM
bLANCE sheet of ADOR, ANTON, ABEL, AMABLE, SHARING 40% , 35%, 15%,10%.
THE TRIAL BALANCE
cash 31,000
other assets 441,500
accts. payable 45,000
loans ADOR 30,000
LOAN ANTON 50,000
ador capital 100,000
anton cap 107500
abel 90000
amable 50,000
1. prepare cash priority schedule.
2. in case cash of 123,500 is available , show the distribution.
=================================================================
ANOTHER PROBLEM TO SOLVE
THE FOLLOWING DATA FOR ARTHUR, BEN, CARLOS, FIRM share ratio of 5,3,2
ARTHUR DRAWING DEBIT BALANCE 16000
BEN DRAWING CREDIT 7000
CARLOS DRAWING DEBIT 6000
LOANS PAYABLE BEN 20,000
ARTHUR CAP 82,000
BEN CAP 60,000
CARLOS CAP 72,000
ON THIS DATE THE TOTAL ASSETS INCLUDING CASH IS 319,000.00 , THE NON CASH WAS SOLD AT 231,500. FINALLY BEN RECEIVED 71,250.00 BASE ON LIQUIDATION STATEMENT .
required:
1. compute each partners equity
2. compute total loss on realization
3. compute non cash assets
4. compute cash balance before the sale
5. compute outsider liabilities.
SOLUTION:
1. THE EQUITY OF PARTNERS COMPOSED OF
. HIS CAPITAL......................................................................
PLUS: CREDIT BAL OF DRAWING................................
LOANS PAYABLE TO HIM................................
LESS: DEBIT BALANCE OF DRAWING...................
ADVANCES /RECEIVABLE FROM HIM
HIS EQUITY...........................................................
2. LOSS ON REALIZATION:
IF BEN RECEIVED 71,250 AND HIS EQUITY BEFORE DISTRIBUTION IS 87000, THT MEANS 15,750 IS HIS SHARE ON THE LOSS ON REALIZATION , IF HIS PROFIT SHARE IS 30% THEREFORE 15,750 DIVIDE 30% = 52,500 AS THE TOTAL LOSS OF THE REALIZATION/
FINAL CASH TO BE RECEIVED 71,250
ADD: HIS SHARE ON LOSS REALIZATION 15750
IF HIS SHARE RATIO IS 30% , THEN DIVIDE 15750 BY 30% = 52,500 AS LOSS.
5. IF THE TOTAL EQUITY IS 219,000 AS COMPUTED IN NO. 1
TOTAL ASSETS IS 319,000 GIVEN
THEREFORE 100.000 IS THE OUTSIDE LIABILITIES
THIS COMPUTED USING THE BALANCE SHEET OR ACCOUNTING EQUATION
CAPITAL LESS ASSETS = LIABILITIES/
3. IF THE CASH FOR DISTRIBUTION IS 231,500 GIVEN
THE LOSS ON SALES IS 52,500
THEREFORE NON CASH ASSETS IS 284,000
note : if you have cash after you sell , and that cash is less than the value of that asset that means you sell at a loss. see this formula:
SALES 231,500
LESS OF THE ITEMS SOLD ( ? ) USE SIMPLE ARITHMETIC
LOSS 52,500
4. IF THE NON CASH ASSETS IS 284,000
AND THE TOTAL ASSETS IS 319,000 GIVEN
BEGINNING CASH 35,000
\
=====================================================================
PROBLEM:
A, B, C PARTNERS SHARING 48%, 32%, 20% WITH CAPITAL AS FF:
CAPITAL LOANS
A 76,320 60,000
B 64,480 20,000
C 51,400 26,200
CASH AVAILABLE IS 27,600.00 , REMAININS ASSETS IS 270,800.
REQUIRED :
1. CASH PRIORITY PROGRAM
A B C TOTAL C A
76320 64480 51400
60000 20000 26200
136320 84480 77600
48% 32% 20%
284000 264000 388000
104,000 X20% 20,800
284000 264000 264000
20000 X 48% 9600
264000 264000 264000 20800 9600
CASH DISTRUTION:
A B C TOTAL
IST 20800 20800
2ND 4800 2000 6800
TOTAL 4800 22800 27600
================================================================
PROBLEM:
TOBY, TONY, TOM shares profit 30%, 20%, 50%, with the ff:
CASH 22500 LOANS TOBY 15000
NON CASH 187500 LOANS TONY 7500
LOANS TOM 7500
CAP TOBY 30000
TONY 75000
TOM 45000
the following had transpired
SALES LIQ. COST LIAB. PAID
BOOK VALUE PROCEEDS
SEPT 37500 22500 2500 20000
OCT 45000 30000 3000 10000
NOV 105000 52500 4000
REQUIRED : SCHEDULE OF SAFE PAYMENT AND LIQUIDATION SCHEULE
SAFE PAYMENT
TOBY TONY TOM
CAP 30,000 75000 45000
LOANS 15000 7500 7500
TOTAL 45000 82500 52500 180000
non cash assets less liabilities 47250 31500 78750 157,500
available cash (2,250) 51000 (26,250) 22500
2250 28500 26250
balance 0 22500 0 22500
LIQUIDATION
cash non cash liab. TOBY TONY TOM
22500 187500 30000 45000 82500 52500
20,000) 20000) PAY liab.
22500 37500 4500 3000 7500 loss on sale
(2500) 750 500 1250 liq. exp
22500) ( 22500 pay TONY
0 150000 10000 39750 56500 43750 BALANCE
30000 45000 4500 3000 7500 LOSS SALE
3000) 900 600 1500 LIQ. EXP
10000) 10000 PAY LIAB.
17000 105000 0 34350 52900 34750 LOSS SALE
52500 105000 15750 10500 26250 BALANCE
4000 ) 1200 800 2000 LIQ. EXP
=================================================================
65500 0 0 17400 41600 6500 BALANCE OF CAP.
======================================================================
THE REMAINING IS BROKEN DOWN TO EACH PARTNER. THOUGH TONY HAD ALREADY RECEIVED HIS SHARE AT THE ONSET OF THE PROCESS OF LIQUIDATION ON THE BASIS OF THE SAFE PAYMENTS SCHEDULE . HE WAS GIVEN THE FIRST TO RECEIVE THE CASH BEFORE LIQUIDATION BECAUSE HIS CAPITAL SURVIVE THE TEST ON THE ASSUMPTION THAT THE WHOLE NON CASH ASSETS WILL BE SOLD AT A LOSS. HE WAS THE ONLY ONE TO SURVIVE BECAUSE THE REST BECOMES DEFICIENT AT THE EARLY STAGE.
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