Illustration of maximum possible loss method

A, B and C have been partners for several years, sharing profits and losses in the ratio 2:2:1. They decided to dissolve the firm on 31 October 2002, on which date the balance sheet was as follows:

Balance Sheet as at 31 October 2002

1)       The assets were duly sold and monies received as follows:

2002

2)             Provision was made for dissolution expenses Sh 2,400.

3)             As soon as sufficient money was available to pay all outstanding creditors, this was done, discounts being received amounting to Sh 1,000.

4)             Dissolution expenses amounted to Ksh 3,400, and these were paid on 31 March 2003.

Required:

a) Statements showing how the dissolution proceeds would be distributed to partners; ignoring the ruling in Garner Vs Murray.
b) The creditors account, realization account, capital accounts and cashbook.

Solution: