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

Required: prepare journal entries for the above transactions, Sleek Ride, a...

Sleek Ride, a company providing limo services, has a December 31 year-end date. For Sleek Ride, the following transactions occurred during the ?rst 10 days of June: a. Purchased, o

Format for balance sheet, FORMAT FOR BALANCE SHEET The non current asse...

FORMAT FOR BALANCE SHEET The non current assets, current assets and current liabilities sections remain identical to those of a sole proprietorship.  However, the “capital sect

Prepare a lease amortization schedule, LessorMfg Corp. is a manufacturer of...

LessorMfg Corp. is a manufacturer of heavy equipment. On January 1, 2013, LessorMfg Corp. leases equipment to Small Company under a six-year noncancelable lease agreement. The foll

Various types of accounting changes can affect the financial, Various types...

Various types of accounting changes can affect the financial statements of a business enterprise differently. Assume that the following list describes changes that have a material

Receiving order, RECEIVING ORDER It includes five main important points...

RECEIVING ORDER It includes five main important points as follows: Effect of receiving order: The consequences of the making of the receiving order are:The debtor retain

Implement a spreadsheet to calculate payments, Tony is a salesperson at a l...

Tony is a salesperson at a local auto showroom. He asks you to assist him in developing a tool for calculating purchase and lease payments. He has already developed a draft of the

Calculate the marginal tax-rate and average tax rate, Thomas Crown expects ...

Thomas Crown expects to earn the following stream of annual income for the next four years:- $41,000; $45,000; $38,000 and $50,000. Although he has adopted the ‘Pay Yourself Firs

Holding company, define the term of pre-acquisition diviend

define the term of pre-acquisition diviend

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