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
Heath Foods's bonds have 6 years left over to maturity. The bonds have a face value of $1,000 and a yield to maturity of 8%. They pay interest yearly and have a 10% coupon rate. Wh

In assessing project risk it is significant to be clear about the meaning of risk. From an academic perspective risk demotes to a set of circumstances regarding a given decision wh

Assignments with the answer for tafe sa 4 edition. Question 11, page 76 and question 39, page 89

An intersting point to not is that there is a difference in the tax treatment of income from Limitied Liability Companies (LLCs) and Corporations. What is this difference and what

Which of the following is NOT an example of an agency cost? A. Paying an accounting firm to audit your financial statements. B. Paying an insurance company to assure that b

Case study Josephine Josephine has just landed her first job out of graduate school.  She is lucky enough to be working for one of the Big Four, earning $50,000 per year.  S

Red Lake Mines, Inc. is considering adoption of a new project requiring a net investment of $10 million. The project is expected to generate 5 years of net cash inflows of $5 milli

Heathrow issues $2,000,000 of 6%, 15-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $2,447,990.

In common terms the future value of an annuity or regular annuity is specified by the subsequent formula: FVA n = A (1 + k ) n -1 + A (1 + k ) n - 2 + ... + A   .............

Objectives of Inventory management After going through this section, you will be capable to: highlight the requirement for and nature of inventory; describe the meth