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Nilanjan Bhowmick AIR 3, CSIR NET (Earth Science)
N. K. Gupta posted an Question
April 04, 2021 • 15:42 pm
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30 points
- UGC NET
- Commerce
Piecemeal distribution explain
piecemeal distribution explain in understanding and to the point explain in simple words. related to accounting term in partnership unit
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Rucha rajesh shingvekar
Meaning: In actual practice, the assets are not realised at once on a single day unless the business is sold to somebody. ... The process followed to discharge the liabilities and claims of the partners as and when the assets are realised is called piecemeal distribution of cash.
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Rucha rajesh shingvekar Best Answer
What is Piecemeal distribution? At the time of dissolution of partnership firm, after realizing all the assets and paying of all the liabilities, the question areas which partner should be paid. Piecemeal distribution of cash solve this issue. How are liabilities paid off? There is a particular sequence in which the liabilities are paid off. The order is as followed- 1. Realization expenses are paid 2. Outside liabilities are paid off. Outside liabilities include creditors, Bank loan or overdraft, Bills payable etc 3. Then partner’s loan is paid off 4. Finally, partner’s capital is paid off There are two methods to distribute the cash to the partners in piecemeal distribution of cash. Those are- 1. Surplus capital method/ Excess Capital Method/ Highest Relative Capital Under this method, the excess capital contribution by the partners, with reference to their profit sharing ratio is determined. It is already noted that the proceeds of assets realized cannot be distributed in profit sharing ratio if the capital balances are not in the profit sharing ratio. Thus, in order to bring the capitals in profit sharing ratio, the excess capital contributed by a partner over and over his proportionate capital with reference to his share of profit, is paid off first. For example, there are 2 partners, A and B sharing profit sharing ratio 3:1 and their capitals are 45000 and 25000 respectively. B’s excess capital is 10000 for his share and this should be paid first. Thus the available cash should paid only to B till the time his capital becomes 15000 thereby making it proportionate to his share of profit. Capital to be considered for this purpose will be after proportionate to his share of profit. 2. Maximum loss method Under this method, first step is to calculate the maximum possible loss after outside creditors and partners’ loans have been paid off. This loss is transferred to the capitals and thus the amount payable to a partner would be known. If a partner’s share of the loss is more than the capital, he should be treated as being an insolvent partner and, in accordance with Garner vs. Murray, the loss should be transferred to the other partners in the ratio of capitals just before dissolution of the firm. The amount to the credit of partners account will be exactly equal to the cash in hand and the cash will be distributed among the partners according to the figures now resulting. Such calculation of maximum loss, whenever an installment of cash is received, will show how much is to be paid to the partners.
Thenx you so helpful answer