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

Show the audit documentation, Q. Show the Audit Documentation? Audit Do...

Q. Show the Audit Documentation? Audit Documentation -Written record of the basis for AUDITOR's conclusions which provides the support for auditor's representations, whether th

Net realizable value of the accounts receivable, After the accounts are adj...

After the accounts are adjusted at the end of the year, Accounts Receivable has a balance of $215,000, Uncollectible Accounts Expense has a balance of $17,500, and Allowance for Do

Prepare an investment plan, Question: Mada Air Ltd is thinking of diver...

Question: Mada Air Ltd is thinking of diversifying its activities in order to cope with the financial crisis. After careful evaluation its research and development team has pro

How to determine the depreciation, How to determine the depreciation To...

How to determine the depreciation To determine depreciation in straight-line method, take cost of the asset, less the trade-in value, and divide by the estimated years of usefu

Steep analysis, i need to prepare a steep analysis report for kathmandu

i need to prepare a steep analysis report for kathmandu

Powers of investment-trust laws and accounts, POWERS OF INVESTMENT The ...

POWERS OF INVESTMENT The trustees have a duty to obtain control of trust assets and to invest trust funds in authorised securities.   The trustees may invest in such securities

Pv ratio, assignment ofr p V RATIO ANALYSIS

assignment ofr p V RATIO ANALYSIS

4 page assignment, How do I know how much is service fee ?

How do I know how much is service fee ?

Show the nature of business operations, Q. Show the nature of business oper...

Q. Show the nature of business operations? The nature of business operations that influences the proportion of fixed costs to total costs. Capital intensive business operations

Capita expenditure and revenue expenditure, Sema pic, a company in the heav...

Sema pic, a company in the heavy engineering industry, carried out an expansion programme in the 2016 financial year, in order to meet a permanent increase in contracts. The compan

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