So, far we have assumed that all the assets are realized immediately on the date of dissolution and the accounts of all the partners and the creditors are settled on the same date.
But this assumption is unrealistic in nature, because normally the process of realizing the assets takes a long time and cash is distributed as and when it is realized. In such a case to avoid unpleasant consequences the assets realized are distributed in such way that the unpaid balance of capitals of each partners is left in their profit sharing ratio.
On a gradual realisation of assets, the cash is distributed in the following order:
1. The debts of the firm to the third parties (outside liabilities) must be paid first.
2. After the creditors, have been paid off, the amount due to a partners as loan should be paid. When the loans are due to more than one partner the cash available should be distributed proportionately.
3. After the payment of outside liabilities and loans due to the partners, the capitals of the partner are paid.
There are two methods for distribution of cash under Piecemeal distribution:
1. PROPORTIONATE CAPITAL METHOD
If the capitals of the partners are in the ratio of their profit sharing arrangement, then each of them is paid out according to his capital ratio at each distribution. If the capitals of the partners are not in the profit sharing ratio then the first cash available (after making payment of outside liabilities and loans due to the partners) for distribution amongst the partners should be paid to those partners whose capitals are more than their profit sharing ratio so as to bring their capitals to their profit sharing levels. After this the cash available is distributed amongst all partners according to their profit sharing ratio.
The unpaid balance of capital accounts will represent loss on realisation and this loss will be exactly in their profit sharing ratio.
2. MAXIMUM LOSS METHOD
An alternative method of piecemeal distribution amongst partner is to calculate the maximum possible loss on every realisation after the outside liabilities and the partners loan has been paid. The amount available for distribution amongst partners is compared with the total amount of capital payable to the partners and the maximum loss is ascertained on the assumption that in future assets will not realize any amount. The maximum possible loss so ascertained is deducted from the capital balances of the partners in their profit and loss sharing ratio and the balance left in the capital account after deducting the maximum possible loss will be the amount payable to the partner.
If a partner’s share of maximum possible loss is more than the amount standing to the credit of his capital account, he should be treated as insolvent and his deficiency should be debited to the capital accounts of the solvent partners in the proportion of their capitals which stood on the dissolution date as stated under the Garner V/s. Murray Rule. The amount standing to the credit of the partners after debiting their share of maximum loss and their share of insolvent partners deficiency will be equal to the cash available for the distribution amongst the partners.
This process of maximum possible loss is repeated on each realisation till all the assets are disposed.
- #KARACHI #MONSOON (1)
- 7 key skills of a project manager (1)
- ACCOUNTING (39)
- ACCOUNTING AND AUDIT SERVICES AVAILABLE (1)
- ACCOUNTING AND MARKETING SERVICES (1)
- Accounting for Bills of Exchange (1)
- Accounting scandals (1)
- ad (3)
- Advertisement (7)
- AMALGAMATION PRACTICE EXERCISES (1)
- B.COM (12)
- B.COM REGULAR 2011 EXAMS (1)
- BILA UNWAN 29/09/2013 بلا عنوان (1)
- BILA UNWAN 30/09/2013 بلا عنوان (1)
- Branch Accounting (1)
- Budget (1)
- Budget 2012-13 (1)
- Budget 2013-14 pakistan (1)
- BUDGET 2014-15 (1)
- BUDGET 2014-15 SALIENT FEATURES (1)
- Business SWOT Analysis - Threats is an Opportunity (1)
- Capital Budgeting (1)
- CERTIFICATE HOLDERS (1)
- COACHING CLASSES FOR B.COM (1)
- COACHING CLASSES FOR COMMERCE STUDENTS (3)
- COACHING CLASSES FOR COMMERCE STUDENTS: (2)
- COACHING CLASSES FOR FIA-ACCA STUDENTS IN KARACHI (1)
- Commerce (1)
- COST ACCOUNTING (11)
- Cricket (1)
- Decentralization (1)
- Dividend (1)
- Economics (26)
- EDUCATION (3)
- EID MUBARAK (1)
- ENRON Scandal Summary (1)
- Entertainment (2)
- Evolution of Tax Culture in Pakistan (1)
- EXEMPTIONS AWARDED BY ICAP TO VARIOUS DEGREE (1)
- fia acca (1)
- Finance (1)
- FOOD STREETS OF KARACHI: HUSSAINABAD AND AYESHA MANZIL (1)
- FREELANCE AUDIT (1)
- GOLDEN OPPORTUNITY TO MARKET YOUR BUSINESS (1)
- HISTORY (1)
- HOLDING COMPANIES (1)
- I.COM AND O/A LEVEL (1)
- icmap (1)
- Investment (1)
- Investment Decision (1)
- IQRA EDUCATION NETWORK AND CONSULTANTS: (1)
- JAVED CHOUDRY (1)
- javed chowdry on burma muslim killings (1)
- Joint Products and Joint Product Cost (1)
- KARACHI UNIVERSITY (1)
- KARACHI UNIVERSITY DATE SHEET (1)
- Khula is not regarded as a talaaq even if the word talaaq is used (1)
- MA ECONOMICS (7)
- management (3)
- Management Accounting (14)
- Marital Issues-khula (2)
- Maslow's Theory of Motivation - Hierarchy of Needs (1)
- Methods of Costing By-Products: (1)
- Movies (1)
- NEW YEAR (1)
- O/A LEVELS (1)
- PARTNERSHIP ACCOUNTS PIECEMEAL DISTRIBUTION (1)
- Politics (3)
- Post Keynesian Economics (1)
- Result (2)
- REVOLUTIONIZING RAMADAN (1)
- RISK ANALYSIS TECHNIQUES (1)
- Segment Reporting and Transfer Pricing: PART 1 (1)
- Sports (1)
- Steps to the Accounting Cycle (1)
- Stock Exchange (1)
- SYLLABUS (2)
- TIME TABLE (1)
- TIMINGS AND VENUES OF EID PRAYERS IN KARACHI (1)
- Top Story (1)
- TOPI DRAMA (1)
- TQM (1)
- Transfer pricing (1)
- Types and Classification of Bill of Exchange (1)
- UNOFFICIAL DATE SHEET B.COM KARACHI UNIVERSITY EXAMS 2011 (1)
- vat (1)
- What is a Term Finance Certificate (TFC) (1)
Accounts receivable, inventory, and total quality management
B.COM PART 1 AND 2 COACHING CLASSES FOR SUPPLEMENTARY EXAMS. HOME AND COACHING. ACCOUNTING, STATISTICS AND ECONOMICS OF PART 1. ADVANCED...
University Of Karachi M.A. (Previous) and M.A. (Final) Examination IN ECONOMICS SCHEME OF STUDIES M.A. (Previous) 1. The examination for deg...
MA-ECONOMICS PRIVATE KARACHI UNIVERSITY,REGISTRATION DATE EXTENDED.
B.COM 1 & 2 ACCOUNTING, STATISTICS, ECONOMICS, ADVANCED ACCOUNTING, INCOME TAX LAW JOIN SIR KHALID 0322-3385752 R-1173,AL NOOR SOCIETY,...
C.A. is sometimes used to identify the Chief Accountant & Chartered Accountant CAD see CASH AGAINST DOCUMENTS. CAFR see Comprehensive ...
In 1943, Dr. Abraham Maslow 's article "A Theory of Human Motivation" appeared in Psychological Review, which were further e...
MA-ECONOMICS FOR EXTERNAL CANDIDATES CRASH CLASSES PREVIOUS & FINAL MICRO ECONOMICS MACRO ECONOMICS ADVANCED STATISTICS FOR ECONOMICS...
INCOME TAX FOR B.COM STUDENTS
For Other Professional Qualifications All candidates seeking exemptions are required to apply on the prescribed Exemption form alongwith the...