How the problems are made
Each problem is an invented partnership of two to four partners with its balance sheet just before liquidation, often with a partner’s loan to or from the firm. Level 1 is a lump-sum liquidation: everything is sold at once and the loss is shared. A solvent partner pays a deficiency in; an insolvent partner’s deficiency is absorbed by the others, sometimes putting a second partner under. Some problems have no deficiency, and the statement has the same rows either way, so it does not give the case away. Level 2 is one month of an installment liquidation by the schedule of safe payments. Level 3 builds the cash priority program and pays out a sum with it. Level 4 is three months of installments paid by the program.
Check marks every box. The usual slips, such as sharing a deficiency in the full ratio or forgetting the cash kept back, each get a hint of their own, and a figure that is wrong only because an earlier box is wrong is marked as following your figures. The answer key also sets out the full columnar statement of liquidation: cash, non-cash assets, liabilities, partner loans and each partner’s capital.
An example from set PH4CPP
Aguilar, Tan and Torres share profits and losses 20%, 40% and 40%. Aguilar’s ₱430,000 capital less a ₱25,000 loan from the firm gives a total interest of ₱405,000, Tan’s ₱410,000 plus a ₱160,000 loan to the firm gives ₱570,000, and Torres has ₱380,000. Their loss absorption capacities are ₱405,000 ÷ 20% = ₱2,025,000, ₱570,000 ÷ 40% = ₱1,425,000 and ₱380,000 ÷ 40% = ₱950,000. Priority 1 pays Aguilar (₱2,025,000 − ₱1,425,000) × 20% = ₱120,000. Priority 2 brings both down to ₱950,000: Aguilar ₱475,000 × 20% = ₱95,000 and Tan ₱475,000 × 40% = ₱190,000. So of the first ₱195,000, Aguilar gets ₱120,000 + ₱25,000 = ₱145,000 and Tan ₱50,000. Open set PH4CPP
The presets
Philippines follows the AFAR topics of the CPA licensure exam: pesos (₱), the profit and loss ratio in percentages, a statement of financial position, loss absorption capacity and a cash priority program. United States follows intermediate and advanced accounting textbooks: dollars, ratios such as 4:3:2, a balance sheet, capital per unit of income sharing and a cash distribution plan. In both, a deficiency is shown in brackets and can be typed as (12,000), −12,000 or 12,000 deficiency, and every amount is a whole peso or dollar.
Questions
In what order is cash paid out when a partnership is liquidated?
Article 1839 of the Civil Code of the Philippines ranks the claims: creditors other than partners first, then what is owed to partners other than for capital and profits, such as their loans, then capital, then profits. Although a loan comes before capital in that order, the right of offset adds a partner’s loan to that partner’s capital for liquidation (and takes a loan to the partner off it), so no cash goes on a loan to a partner who may end with a deficiency (Larsen). That is why these problems work with each partner’s total interest. Liquidation expenses are paid from the sale proceeds before the partners get anything.
What is the right of offset?
A loan a partner made to the firm is added to that partner’s capital, and a loan the firm made to the partner is taken off, before any cash is paid. Larsen’s Modern Advanced Accounting calls the result the partner’s equity; reviewers in the Philippines call it total interest. Dela Cruz with ₱280,000 capital and a ₱40,000 loan to the firm has ₱320,000.
What happens when a partner’s capital becomes a deficiency?
The partner owes the firm that amount. If the partner is personally insolvent and cannot pay it in, the other partners absorb it in their relative profit and loss ratio. With 40%, 30% and 30% and the 40% partner insolvent, the other two take it 30 : 30, half each, not 30% each.
How does a schedule of safe payments work?
Each time cash is paid out, assume the worst: every non-cash asset still unsold is lost, and so is any cash kept back for expenses. Share that possible loss in the profit and loss ratio. A partner pushed below nil is treated as insolvent, and the others absorb that deficiency in their relative ratio. What each partner has left is safe to pay now.
How do you prepare a cash priority program?
Divide each partner’s total interest by the P&L percentage (loss absorption capacity) or by the ratio number (capital per unit of income sharing). The partner with the largest figure is paid first, down to the next one. In Larsen’s example Ray, Sam and Tom share 4:3:2 with $16,000, $10,500 and $6,020, so $4,000, $3,500 and $3,010 per unit. The first $2,000 ($500 × 4) goes to Ray, the next $3,430 to Ray ($1,960) and Sam ($1,470), and anything more 4:3:2.
Do the two installment methods give the same payments?
Yes. The schedule of safe payments and the cash priority program pay each partner the same cash at every stage; the program works it out once, in advance. Every problem here is solved both ways and checked to agree before it is shown.
Sources, checked October 29, 2026: the Civil Code of the Philippines, Articles 1797 and 1839; OpenStax Principles of Accounting, Volume 1, section 15.5; the chapter highlights of Larsen’s Modern Advanced Accounting (McGraw-Hill); and the open-exam-prep CPALE AFAR study guide on partnership liquidation.