S and T are equal partners in the ST partnership and share p

S and T are equal partners in the ST partnership and share profits and losses accordingly. At the end of 20X1, the partnership\'s capital accounts reflect the following numbers due to a special allocation of depreciation: Capital S ($20,000) Capital T is $60,000. All the assets are sold for $40,000. How much will T receive in liquidation if the special allocation is to be respected? A. $20,000 B. $40,000 C. $60,000 or D. $80,000

Solution

As after special allocation of depreciation the S has a deficit capital account. T has to set off the deficient balance of S from his excess capital balance before receiving any payment on liquidation. The set off of deficit balance is shown as follows:-

  S T

Capital ($20,000) $60,000

Adjustment of deficit balance $20,000 ($20,000)

Balance to be paid $0 $40,000

Therefore T will received $40,000 in liquidation if the special allocation is to be respected.

Therefore the correct option is B. $40,000