The surplus capital method-partnership, Financial Accounting

THE SURPLUS CAPITAL METHOD

Under this method, the initial amounts repaid to partners are in order to reduce their capitals to amounts such that these are now in the same ratio as that in which they share profits and losses. The amounts so repaid are referred to as “repayment of surplus capital”.

For example, if there are three partners who share profits and losses equally, and have capitals of Ksh 100,000 Ksh 60,000 and Ksh 40,000, the surplus capitals will be as follows:

610_graph1.jpg

Once the surplus capital has been paid to partners the remaining capital, known as ‘base capital’ can be repaid. The base capital is in the same ratio as that in which profits and losses are shared. In the illustration, it is 1:1:1(equal). Any cash collected can also be distributed in profit sharing ration – 1:1:1.  This will allow capital balances to fall uniformly as more and more cash is paid to partners.

As a final example to this, assume that there are three partners with capitals of Ksh 60,000, Ksh 75,000 and Ksh 120,000 who share profits and losses in the ratio 3:2:1 respectively. Their surplus capitals can be illustrated as follows:

888_graph2.jpg

Of course, there will be a priority payment of surplus capital between the two partners who have surplus capital.  The partner who will receive the first payment is said to have been repaid his ‘surplus surplus capital’.

Posted Date: 12/11/2012 7:10:38 AM | Location : United States







Related Discussions:- The surplus capital method-partnership, Assignment Help, Ask Question on The surplus capital method-partnership, Get Answer, Expert's Help, The surplus capital method-partnership Discussions

Write discussion on The surplus capital method-partnership
Your posts are moderated
Related Questions
In February, one of Team Shirts' best customers went bankrupt owing team shirts $85. Team shirts uses the sales method for estimating bad debts. February sales were $15,000. The ac

IFRS guidelines IFRSs Gives the guideline on the content and the accounting statements of certain events and transactions in the financial statements. The following IFRSs are r

Evaluate the following statements, and explain why you agree or disagree. (a)    In a recent interview, a Wall Street investment banker commented on the infrequent use of Prefer

Determine the Features of Accounting information system Accounting information system must have certain features which are common to all valid information systems within a bus

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

Hi I am doing my thesis on IAS 40 and I''m sort of stuck with finding information. I need to find positive and negative international critique on the standard

Equity shareholders, potential and present, seem primarily to the company's record of earnings. They are thus interested in relationships as earnings per share or EPS and dividends

Ask question #EM201683STE718FACMinimum 100 words accepted#

Illustrations of Changes in accounting estimates B Ltd., bought an item of plant at a total cost of £100,000. The estimated useful life commencing from 1st January 2000 was 10

Jackson Corporation's bonds have 12 years remaining to maturity. Interest is paid yearly, the bonds have a $1,000 par value, and the coupon interest rate is 10.5%. The bonds have a