The maximum possible loss method-partnership, Financial Accounting

The maximum possible loss method

Under this method, a table is set up to compute the amounts payable to each partner. The results of the computation may be then posted into the capital and other relevant accounts.  The computation works on the basis that capital accounts take the following form:

 

Sh

Sh

 

Sh

Sh

Cashbook

X

X

Bal b/d

X

X

Realisation loss

X

X

 

 

 

 

XX

XX

 

XX

XX

 

 

 

 

 

 



Therefore: Capital – Cash    =  Realisation Loss    OR
               Capital – Realisation Loss  =  Cash to be paid.


The table takes the following form:  [Assume 3 partners A, B and C].

 

Sh

Sh

 

Sh

Sh

Cashbook

X

X

Bal b/d

X

X

Realisation loss

X

X

 

 

 

 

XX

XX

 

XX

XX

 

 

 

 

 

 


In the initial stages, the cash received may be little, and this may result in a large ‘Maximum possible loss’. When this is divided amongst partners in profit sharing ration and deducted from capitals, the resultant figure is negative debit. Assuming a maximum possible loss situation, the partner with a negative figure will be deemed bankrupt, and the negative figure uncollectible. This will be divided amongst the other partners in profit sharing ratio or the ratio in which capitals are held.  It will depend upon whether the ruing in Garner Vs Murray is to be excluded or applied.  Whichever the case, the table will now take the following form:

 

Sh

Sh

 

Sh

Sh

Cashbook

X

X

Bal b/d

X

X

Realisation loss

X

X

 

 

 

 

XX

XX

 

XX

XX

 

 

 

 

 

 

It is important to realize that the loss in the table is not real; it will only become real if no further cash is collected.  The loss is only for the cash collected this far.

Posted Date: 12/11/2012 7:01:05 AM | Location : United States







Related Discussions:- The maximum possible loss method-partnership, Assignment Help, Ask Question on The maximum possible loss method-partnership, Get Answer, Expert's Help, The maximum possible loss method-partnership Discussions

Write discussion on The maximum possible loss method-partnership
Your posts are moderated
Related Questions

The price stages are that at which sellers recruit securities to borrowers.

Investment with cum.div. Quotation Investment with cum.div. Quotation will be debited to the investment account at its full value. When the dividend is subsequently received it

Combined income statement The figures to appear in the combined income statement are based on the following diagram: 1) An arrow pointing into a box refers to purchase

If fixed costs are $259,238, the unit selling price is $112, and the unit variable costs are $63, what is the break-even sales (units)?

Heather & Terry have a mortgage on their primary residence of $750,000 and a mortgage on their vacation home of $410,000. In 2013, they incurred $46,400 of mortgage interest expens

Profits in subsidiary company The remaining profits that belong to the holding company should be split between pre-acquisition profits and post acquisition profits. The pre

Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2010. No common stock was issued during 2011. On January 1, 2011, Didde issued 200,000 shares of

Q. Net present value evaluation of proposed investment? WORKINGS Fixed costs = 4·50 × 100000 = $450000 per year Annual writing down allowance = 3000000/10 = $300000

The intestate leaves no spouse and no children The net estate devolves as follows: to his Father; or if dead Mother; or if dead Brothers and sisters, and any child o