The surplus capital method-partnership, Financial Accounting

Assignment Help:

THE SURPLUS CAPITAL METHOD

Under this method, the initial amounts repaid to partners are in order to reduce their capitals to amounts such that these are now in the same ratio as that in which they share profits and losses. The amounts so repaid are referred to as “repayment of surplus capital”.

For example, if there are three partners who share profits and losses equally, and have capitals of Ksh 100,000 Ksh 60,000 and Ksh 40,000, the surplus capitals will be as follows:

610_graph1.jpg

Once the surplus capital has been paid to partners the remaining capital, known as ‘base capital’ can be repaid. The base capital is in the same ratio as that in which profits and losses are shared. In the illustration, it is 1:1:1(equal). Any cash collected can also be distributed in profit sharing ration – 1:1:1.  This will allow capital balances to fall uniformly as more and more cash is paid to partners.

As a final example to this, assume that there are three partners with capitals of Ksh 60,000, Ksh 75,000 and Ksh 120,000 who share profits and losses in the ratio 3:2:1 respectively. Their surplus capitals can be illustrated as follows:

888_graph2.jpg

Of course, there will be a priority payment of surplus capital between the two partners who have surplus capital.  The partner who will receive the first payment is said to have been repaid his ‘surplus surplus capital’.


Related Discussions:- The surplus capital method-partnership

Assingment, Can you do the attached quections by Monday?

Can you do the attached quections by Monday?

Pre-adjustment, security service= R38570 the annual security services contr...

security service= R38570 the annual security services contract has been taken out on 1 March 2012. The fee was increased by 10% from january 2013 and the fee has already been paid

Limited liability partnership, Limited Liability Partnership (LLP) - GENERA...

Limited Liability Partnership (LLP) - GENERAL PARTNERSHIP which, via registration with an appropriate state authority, is able to enshroud all its partners in limited liability. Ru

Internal revenue service (irs), Explain:- Q.1 Explain the ways in which...

Explain:- Q.1 Explain the ways in which the needs of internal and external users of accounting information are the same and different. Q.2 Why is it important for financial sta

Small bankruptcies-bankruptcy and liquidation, SMALL BANKRUPTCIES The c...

SMALL BANKRUPTCIES The court may order the estate of a debtor to be administered summarily, if the debtor's assets are not likely to exceed Shs 12,000 in value.  This is known

Compare the alternatives on a total-annual-cost , The Rohr Company's old eq...

The Rohr Company's old equipment for making subassemblies is worn out. The company is considering two alternatives: a) Completely replacing the old equipment with new equipment

Objectives of inventory management, The twin objectives of inventory manage...

The twin objectives of inventory management are financial and operational. The operational objective implies that the materials and spares would be obtainable in sufficient quantit

determine the hibor , The following are the three-month HIBOR and three-ye...

The following are the three-month HIBOR and three-year EFN futures prices for September 2010 contracts.   a Determine the HIBOR in three-months for settling the futures

Prepare a report addressing adjust financial statements, You are the audito...

You are the auditor of a small private company called XYZ Limited. Last year, which was 20X9, the audit went smoothly and every balance on the financial statements was correct. Thi

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