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

Rate of return on assets, EVERLIGHT COMPANY LIMITED Comparative Balan...

EVERLIGHT COMPANY LIMITED Comparative Balance Sheet December 31, Year 1 and Year 2     Year 1       Year2

Income statements, how to solve the question income statements

how to solve the question income statements

Process of abc analysis - inventory control, Process of ABC Analysis •...

Process of ABC Analysis • Classification:   On the origin of expected use, the items of inventory are categorized according to their categories and per unit Price of each item

Financial and managerial accounting, You have been hired as consultants to ...

You have been hired as consultants to advise Mr D of DN Company limited on the performance of his company which has been  in business for two years. He has provided you with a subs

Journalizing, Purchased used truck for 8,000 ,paying 2,000 cash and the bal...

Purchased used truck for 8,000 ,paying 2,000 cash and the balance on account

Dividends in arrears on cumulative preferred stock, Q. Dividends in arrears...

Q. Dividends in arrears on cumulative preferred stock a. are shown in stockholders' equity of the balance sheet. b. must be paid before common stockholders can receive a dividend.

Balance sheet-trusts laws and accounts, BALANCE SHEET Grouping of items...

BALANCE SHEET Grouping of items:   Items in the Balance Sheet should be grouped under appropriate headings. In particular, a trust operating the provisions of the Trustee Act

What are usaco''s options? explain, USAco is the wholly-owned U.S. subsidia...

USAco is the wholly-owned U.S. subsidiary of ASIAco, a Japanese parent corporation that manufactures automobiles and sells them to USAco for resale in the United States. ASIAco sel

Bill Receivable, What is the function of bill receivable? What is the meani...

What is the function of bill receivable? What is the meaning of bill receivable?

Off balance sheet financing, Q. Off balance sheet financing? A finance ...

Q. Off balance sheet financing? A finance charter exists when the substance of the lease is that the lessee enjoys substantially all of the risks and rewards of ownership even

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