Final answer:
A partnership liquidation with a capital deficiency means that the partnership does not have enough assets to cover its debts and obligations.
Step-by-step explanation:
When a partnership liquidation is a situation in which capital deficiency exists, it means that the partnership does not have enough assets to cover its debts and obligations. This often occurs when the partnership has incurred significant losses or when its assets have depreciated in value.
For example, let's say a partnership has debts of $100,000 but its assets are only worth $80,000. The partnership would have a capital deficiency of $20,000.
In this situation, the partners are responsible for covering the capital deficiency using their personal funds. If they are unable or unwilling to do so, the partnership may need to declare bankruptcy and possibly liquidate its assets to repay the creditors.