Problems due to Piecemeal realizations

These interim distributions give rise to two problems:

• Partners have not always contributed capitals in the same ratio as that in which they share profits;
• There will always be uncertainty of future realizations

These two problems point in the same direction:  how does one pa cash to partners in such amounts that the partner will never be asked to return any at a later date as excess?

The distribution has to be made in such a way each partner only receives cash after considering all possible gains and losses attributable to that partner at that stage.  Two methods have been developed to accomplish this;The

• maximum possible loss method
• The surplus capital method