Problems due to piecemeal realizations-partnership, Financial Accounting

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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

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