TOTAL ASSETS ( at NRV or FMV) © ASSETS PLEDGE TO FULLY SECURED CREDITORS * ASSETS PLEDGE TO PARTIALLY SECURED CREDITORS © FREE ASSETS: {a) Assets not pledged (b) Excess of Assets pledged to fully secured creditors TOTAL UABILITIES (at required amount to sett or BV) * UNSECURED DEBTS WITH PRIORITY (a) Administrative Expenses of Receiver (b) Unpaid Employee's salaries, wages and benefit plans (c) Corporate Crimes (d) Taxes (National, Provincial City/Municipal) (e} Corporate Torts (f Notarized Debts / Judgment Debts «FULLY SECURED DEBTS ‘= PARTIALLY SECURED DEBTS - SECURED PORTION Cash Available for Unsecured Liabilities (or Net Free Assets) [A] * UNSECURED DEBTS WITHOUT PRIORITY (a) Partially Secured Liabilities - Unsecured Portion {t) Purely Unsecured Liabilities Estimated Deficiency | B] RECOVERT RATE = A/B (Al Unsecured Debts with priority (8) Fully Secured Debts (C) Partially Secured Debts NAV of Asset pledge + Balance at Recovery rate (0) Unsecured Debts without priority Balance at Recovery rate aeTotal Assets (EXCEPT CASH) Assets To Be Liquidated Assets Liquidated Assets Acquired - new Assets Not Liquidated Total Liabilities Uabilities Liquidated Liabilities To Be Liquidated Liabilitles Not Liquidated Liabilities Incurred - new Notes: * The receiver normally open NEW accounting books for the liquidating corporation and RECORDS assets and liabilities at thelr BOOK VALUES * The DIFFERENCE of corporation's assets and liabilities Is CLOSED to ESTATE EQUITY account. * During liquidation process, the following are DIRECTLY CLOSED to ESTATE EQUITY account: 1. Unrecorded assets and liabilities arises (new) 2. Expenses and Revenues during liquidation 3. Gains and Losses upon realization of assets Special Notes: ™ Insolvency means sum of debts > sum of assets of corporation at FV ~ In times af insolvency, corporation has 3 alternatives: 1, Liquidation - operation ceases (voluntary) 2. Debt Restructuring - operation continues (if accepted by the parties) 3. Reorganization - operation continues (if accepted by the parties) ~ Statements to he prepared: * by the liquidating corporation: 1. Statement of Affairs - prepared by corporation before liquidation - mot a going concern statement, thus historical cost are IRRELEVANT © by the receiver / trustee assigned by SEC: 1, Statement of Cash Receipts and Disbursement 2. Statement of Estate Equity (Deficit) 3. Statement of Realization and Liquidation* Units moy be produced with some DEFECTS requiring some REWORK or effortta correct such defect. Thus, on ADDITIONAL COST thot will be incurred should be ADDED or CAPITALIZED to production cost A. CHARGEABLE TO ALL PRODUCTION “if Rework is due to Internal Failure tnitial Costef ADIUSTED Cost Rework COST DM Cost 00 . 10x DL Cost so - HX. OH Cost oe + 700K Total Cost xxx : 200 NOTES: +» Addtional Cost for Rework is CHARGED TO FOH. Thus, TOTAL COST & UNIT COST for that specific Job order REMAINS THE SAME 5. CHARGEABLE TO SPECIFIC 108 ORDER if Rework is due to Customers Specification Initial = Costof ADJUSTED. Cost Rework COST DM Cost KK 1x RK DL Cost 000 10x 7001 GH Cost xx cod wax, Total Cost xxx NOTES: * Additionol Cost for Rework is CHARGED TO SPECIFIC JOB ORDER, Thus, TOTAL COST & UNIT COST for thot specific job order WILL INCREASE Total Cost of Production OO — = Unit Cost Total Number ef Units Produced * Observe that the COST INCREASES but te NUMBER OF UNITS REMAINS THE SAME[Prod Costinelades | Actual_| Normal Standard NOTE: = Applied rate/Predetermined rate, computed as follows: Estimated Cost per component CHE DIRE CHAO < Interest acquired | # 2 Steps to determine the balance of old partnets AFTER ADMISSION 1. Determine the revaluation (over/under) AND distribute to old partners using their PL ratio 2. Transfer Capital to the new partner Old A Old B NewC Total Contributions 0 x 0 Revaluation xx)00K) 306K (100%) KK [KXX) Balance 1% 10K 08 Transfer of interest out) OK, : Agreed Capital 1x a 300K x NOTE: If asset revaluation is the oppropriate method, but the amount of over/under valuation for adjustment in assets) is not given, The BALANCE AFTER REVALUATION OF THE SELLING PARTNER is computed as follows: [ New Partner Payment / acquired interest (2%) from selling partner }, Then, SQUEEZED‘SPECIAL CASE: ASSET REVALUATION AND BONUS COMBINED * Total Contributed Capital (TCC) NOT EQUAL Total Agreed Capital (TAC) * Partners’ contributed capital (before admission) NOT EQUAL their agreed capital (after admission) * Old partners accounts are adjusted twice, (1) for asset revaluation (2) for bonus * New partner account is adjusted ONLY by Bonus OMA OB NewC Total Contributions 1K 200K 0K OK Revaluation soaxfsood)_s00c( 200) se0x{s00) Balance 300 200 OK Bonus yecxfoox) s06¢(3000) _frox}s00¢ Agreed Capital 5K 30k 30x 50K NTE: If asset revaluation is an appropriate method, but the amount of over/under valuation (or adjustment in assets) is not given, TOTALAGREED CAPITAL is: computed as follows: [ New Partner Contribution / acqtrired interest (%) in the firm ] « At date of retirement, partners capital accounts shall be adjusted for: ~Their share in Profit or Loss as of the date of retirement - Their share In Asset Revaluation (not implied, thus must be indicated) -Loan Balances « The Adjusted Capital of the retiring partner may be recovered thru: 1. Sale to Outsider - mere transfer of interest (same with admission by purchase) 2. Sale to remaining partners - mere transfer of interest between partners 3. Payment of his share by the partnership: Settlement Price = Adjusted Capital NO BONUS Settlement Price > Adjusted Capital Bonus to RETIRING partner Settlement Price < Adjusted Capital Bonus to REMAINING partners Step 1; Adjust capital accounts Step 2: Close Adjusted capital accaunts into Share Capital and APIC if any. * Settlement is EITHER: Option 1 BEG OF THE YEAR DATE OF DEATH SETTLEMENT Pro-ratasharein — Interest on Capital Profits plus; Balance Option 2 Share in the Profit for the WHOLE YEAR‘VALUATION 1. Cash at FACE VALUE (|f foreign currency at current exchange rate) 2. Inventory at LCNRV or Fair Value 3. Othe NonCash Assets (Order of Priority) a. Agreed Value b, Fair Value ¢. Appraised Value d. Carrying Value 4. Liabilities are considered ASSUMED unless otherwise stated to the contrary 5. Capital Accounts are accounted using 2 methods; a. BONUS METHOD ~ No Goodwill recognition *~Total Assets & Total Liabilities remain unchanged te ‘J =Total Agreed b. INVESTMENT (WITHDRAWAL) METHOD ~ If Adjusted Capital > Unadjusted Capital [ Investment] ~ Hf Adjusted Capital < Unadjusted Capital [ Withdrawal } d Total Agreed Capital 6. Adjusting entries for Depreciable Assets (& Other Assets) require adjustment to their CONTRA ACCOUNTS with the capital balance. Ex. Capital Account 00 Accumulated Depreciation 30K (to record decrease in PPE) 7. To transfer Depreciable Assets to the new book of partnership, these shall be recorded at NET AMOUNT 8. To transfer Accounts Receivables to the new book of partnership, these shall be recorded at GROSS AMOUNT (can still be recorded eventually) 9. PL ratio is IRRELEVANT in this stage.2 Methods: 1. LUMP SUM LIQUIDATION 2, LIQUIDATION BY INSTALLMENT - one time payment LIQUIDATION PROCESS STEP 1: Sale of Non-Cash Assets and Distribution of Gain or Loss to partners (Realization of NCA} STEP 2: Payment of Liabilities (does not affect capital balances) Payment of Expenses (affects capital balances) STEP 3: Elimination of Deficiency {order of priority) A, Right of Offset (If DP has Loans Receivable from the partnership) B. Additional Investment {If DP is solvent; up to extent of his solvency) C. Absorption of others with adequate balance (If DP is Insolvent} allocate based on remaining PL ratio STEP 4: Payment to partners (order of priority) A, Loan Accounts B. Capital Accounts NOTE: Before Liquidation, All Account Balances MUST BE ABJUSTED, specifically capital accounts of partners series of payment SAME liquidation process as in Lump sum Liquidation, but itis done by installment. 1. In determining the Capital Accounts of partners before liquidation; A, Receivables from partnership ‘Added to Capital B, Payables to partnership Deducted from Capital . Loan Accounts Maintained D. Drawing Accounts Clased to Capital E, Partnership Goadwill Written off and adjust Capital (PL ratio) 2. Gain or Loss is distributed to capital accounts based on partners’ PL ratio 3, abilities should be paid in full OR cash sufficient to ensure payment of all liabillties and future expense must be withheld 3. After payment of all liabilities, partners loan accounts must be paid with right of offset. 4. Cash distribution to partners should be made with the objective of systematically bringing the ratio of capital accounts In agreement with partners PL ratio. Thus, in the end, PL RATIO= CAPITAL RATIO.DETERMINATION OF CASH DISTRIBUTION (TWO ALTERNATIVE METHODS) SAFE PAYMENT ~ Done every cash payment to partners A 8 Capital Balance soot voor (] Maximum Loss poo} face) note t Free Interest vo foo.) 44) Absorption boo} oxen? To be Distributed ro a note 2. Maximum Loss is composed of: 1. Unre. id Non-Cash Assets 2. Cash Withheld ‘Other components: 3. Unrealized Loss 4. Liabilities note2: incase, there is a deficient partner during sate payment, deficiency shall be ABSORBED ONLY by other partners, as they are alll considered insolvent under safe payment, If No Deficiency, Frag interest = Distntutabie Cash. CASH DISTRIBUTION PROGRAM ~ determines partner to be pald first A B ‘Capital Balance vot wot (of-)Loans werface) _sooxbood) Adjusted Capital Balance we woot (+) corresponding PL ratio % % Loss Absorption Ability mo we note: whoever has the HIGHEST LAA shail be the FIRST PRIORITY in cash eistréution, $0 onand sa forth Lot Priority LAA rox "Any EXCESS CASH after {-] 2nd Priority LAA pox) paying ell the priorities for Excess ox COS distribution shail be (*) correspanding PL ratio og _ Seeibuned ro oF parmners To be distributed. 1st Priotity SE CE AN. «80.0 and so forth ‘SHORTCUT SOLUTION ‘Cash, Beginning Balance 000 Proceeds from sale of NCA voor Liquidation Expense ce) Liabilities ee broce) ‘Cash withheld ox)4. INTEREST {on Beginning/Ending/Average/Original Capital) ~ would be a fractional year ~ given REGARDLESS of the result of operation (whether NI or NL) ~ Interest is NOT AN EXPENSE ~ Ifthe base is not specified, use AVERAGE Capital ™ must be specifically agreed upan by partners Note: In averaging of capital, only the follawing ts considered: 1 Additional Investment 2 Permanent Withdrawals * If based on Capital, interest is ADDED to partner's share in NI « if based on Drawings, interest is DEDUCTED from partner's share In NI 2. SALARIES ~ would be a fractional year ~ given REGARDLESS of the result of operation (whether NI of NL) > Interestis NOT AN EXPENSE ~ must be specifically agreed upan by partners SPECIAL NOTE: ~ if there's an agreement that the amount to be distributed among the partners is limited up ta the extent of profit only or based on the following priority, USE the SALARY RATIO / INTEREST RATIO, whichever applicable 3. BONUS TO MANAGING PARTNER: ~ Provided if there's a PROFIT ONLY * if based on NI Before Bonus, itis NOT an expense * Ifbased on NI After Bonus, itis considered as EXPENSE ~ FORMULA; * Bonus is at NI AFTER BONUS and/or others (S/I) Niless required deductions (5/1 xBR BONU! (1+ Bonus Rate)B. BY INVESTMENT DETERMINATION OF NEW PARTNER'S AGREED CAPITAL Old Partners’ Contributed Capital 300 New Partner's Contributions sxx [AT Under - Valuation of assets (if any) 70K Over - Valuation of assets (if any) (00) TOTAL CONTRIBUTIONS 700 (x) interest acquired % AGREED CAPITAL OF NEW PARTNER KX (8) NO revaluation or bonus or goodwill UNDER-vallation or Bonus to OLD partners OVER-valuation or Bonus to NEW partner ppp av oo METHOD 1: BONUS METHOD (If silent} * Total Contributed Capital (TCC) = Total Agreed Capital (TAC) * Partner's Contributed Capital (before admission) NOT EQUAL their Agreed Capital {after admission} » The change between partners’ capital account before and after admission is either BONUS from old partnerd to new partner or vice versa. OldA OldB NewC Total Contributions 2K 0 006 20K Bonus (echo Locesex _s004{s00%) = Agreed Capital OK 00 METHOD 2: ASSET REVALUATION METHOD (not implied) * Total Contributed Capital (TCC) NOT EQUAL Total Agreed Capital (TAC) © Old partners’ contributed capital (before admission) NOT EQUAL their agreed capital (after admission) © New partner's contributed capital = agreed capital # Over/Under Valuation is distributed to OLD PARTNERS using their PL RATIO Old A Old B New C Total ‘Contributions ox 3008 300 so Revaluation sxeroo,) —00x(a0x), so0xfx000) Agreed Capital xxx 200 wot NOTE: If osset revaluation Is an appropriate method, but the amount of over/under valuation (or adjustment in assets) is not given, TOTAL AGREED CAPITAL is computed as follows: | New Partner Contribution / acquired interest (%) in the firm)