The maximum possible loss method-partnership, Financial Accounting

Assignment Help:

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.


Related Discussions:- The maximum possible loss method-partnership

Journalize the foregoing transactions and post to the a/c, During the fourt...

During the fourth quarter of 2006, Cablevision, Inc., generated excess cash, which the company invested in securities, as follows: On Nov. 12 purchased 1,000 shares of common st

Evaluate weighted average cost of capital, Q. Evaluate Weighted average cos...

Q. Evaluate Weighted average cost of capital? As the investment is an extension of existing activities the risk of the investment will be estimated using the company's current

Non-quantifiable factors to accept the proposal, Any non-quantifiable facto...

Any non-quantifiable factors you feel might influence the decision to accept the proposal. Net present value methods are merely assessments of factors that we can quantify. The

What is the interest receivable and interest revenue, Journalize the entrie...

Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January. Date Face Amount Term Interest Rate 5. Nov. 15 $54,000 60days 6% 6. Dec. 27 $40,500

Estimate cost of equity using dividend valuation model, Q. Estimate cost of...

Q. Estimate cost of equity using dividend valuation model? The cost of equity may be approximate using either the dividend valuation model or the capital asset pricing model. I

Return on equity, profit margin 2.5%, equity multiplier 2.0,sales $50000, c...

profit margin 2.5%, equity multiplier 2.0,sales $50000, common equity $25000.compute return on common equity.

Explain about credit-worthiness, Q. Explain about Credit-worthiness? Th...

Q. Explain about Credit-worthiness? There are a numerous ways in which Fenton Security plc could ensure that customers are subjected to tighter credit appraisal checks before g

Ethic , i need you to answer my cases

i need you to answer my cases

Qualitative characteristics , Since 1968, Dracula Limited has traded in Don...

Since 1968, Dracula Limited has traded in Doncaster, South Yorkshire as a manufacturer of fancy-dress and theatrical costumes. It produces a wide range of general theatrical costum

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd