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PARTNERSHIP ACCOUNTS PIECEMEAL DISTRIBUTION So, far we have assumed that all the assets are realized immediately

y 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 partners 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.
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PROBLEMS PROPORTIONATE CAPITAL METHOD

1. A, B & C sharing profits and losses in the proportion of 1/2, 1/3 & 1/6. Their Balance Sheet
was as follows: Liabilities Creditors As Loan A/c As Capital A/c Bs Capital A/c Cs Capital A/c Total Amount 50000 10000 50000 10000 40000 160000 Assets Land and Buildings Plant & Machinery Stock Debtors Cash Amount 70000 40000 25000 20000 5000 160000

The partnership is dissolved & the Assets are realized as follows 1st Realisation 40000 2nd Realisation 30000 3rd Realisation 54000 4th Realisation 7000 Prepare a statement showing how the distribution should be made by using proportionate capital method 2. M,N & O were partners in a firm sharing profits and losses in the ratio of 1/2, 1/4 & 1/4 respectively on the date of dissolution their balance sheet was as follows: Liabilities Amount Assets Amount Creditors 28000 Sundry Assets 80000 Ls Capital A/c 20000 Ms Capital A/c 20000 Os Capital A/c 12000 Total 80000 80000 The assets realized Rs.68000 & it was received in installments of Rs.28000, Rs.20000 & Rs.20000. Prepare a statement showing distribution of cash by using proportionate capital method.

3. A, B & C were in partnership sharing profits and losses in the proportions of 1/2, 1/3 & 1/6
respectively. The partnership was dissolved on 30/06/2000 when the proportion was as follows: Liabilities Amount Assets Amount Capital Account Cash in Hand 28000 A 140000 Debtors 294000 B 70000 Stock in Trade 112000 C 14000 224000 Creditors 210000 Total 434000 434000 There was a bill for Rs.10000 due on 30/11/2000 under discount. It was agreed that net realisation should be distributed in their due order (at the end of each month) but as safely as possible. The realisations & expenses were: 31.07.2000 31.08.2000 30.09.2000 31.10.2000 30.11.2000 Stock & Debtors 84000 126000 70000 77000 35500 Expenses 7000 5400 4900 3500 3500

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The stock was completely disposed off & the amounts due from debtors were realized, the balance being irrecoverable. The acceptor of the bill under discount met the bill on the due date. Draw up a detailed statement showing the monthly distribution of cash realized using proportionate capital method. PROBLEMS MAXIMUM LOSS METHOD

4. The following is the balance sheet of X,Y & Z who share profits and losses equally:
Liabilities Amount Assets Capital Account Sundry Assets X 29000 Cash at Bank Y 20000 Profit and Loss A/c Z 11000 60000 Creditors 10000 Total 70,000 The firm dissolved on 1/12/2002 & the assets were realized as follows: 1st Realisation 6000 2nd Realisation 9000 3rd Realisation 15000 4th Realisation 18000 Show the distribution of cash under maximum loss method Amount 60000 4000 6000 70,000

5. Rinku, Pinku & Tinku were in partnership sharing profits & losses in the ratio of 3:2:1. Their balance sheet on 31/12/2001 was as: Liabilities Amount Assets Amount Creditors 30000 Cash 3000 Tinkus Loan A/c 5000 Stock 25000 Capital Accounts Debtors 35000 Pinku 15,000 Bills Receivable 3000 Rinku 15,000 Furniture & Fittings 9000 Tinku 10,000 40000 Total 75,000 75,000 The Bills Receivable were accepted on 1/11/2001 payable after three months on 1/1/2002. The firm was dissolved. The assets realized and the expenses were as follows: Stock Debtors Furniture & Fittings Expenses 31 Jan 5000 7000 2000 600 28 Feb 9000 10000 3500 1000 31 Mar 6000 11000 -----3000 30 Apr 2500 4500 2000 900 The Bills Receivable were dully honoured. Prepare a statement showing the distribution of cash assumes payments were made on the last day of the month. 6. Following is the balance sheet of M/S. P, Q & R who share profits & losses in the ratio of 2:2:1 Liabilities Amount Assets Amount Creditors 15000 Cash in Hand 2000 Capitals Debtors 22000 P 15000 Stock 22000 Q 12000 R 4000 31000 Total 46000 46000 The firm dissolved & the assets were realized gradually as follows: 1st Realisation 10000 2nd Realisation 15000
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3rd Realisation 9000 Show the distribution of cash under maximum loss method 7. Monika, Sonika & Ronika share profit and losses in the proportion of 2:1:1. Their balance sheet is as follows: Liabilities Amount Assets Amount Creditors 10000 Plant & Machinery 25500 Sonikas Loan 6000 Stock 15500 Ronikas Loan 4000 Furniture 5000 Reserve Fund 8000 Sundry Debtors 17000 Contingency Reserve 6000 Cash in hand 6000 Capital Accounts Monika 20000 Sonika 10000 Ronika 5000 35000 Total 69000 69000 The firm is dissolved, and the assets are realized as follows: 1st Realisation 12000 2nd Realisation 25000 3rd Realisation 19000 On the dissolution date, there was a contingent liability of Rs.2000 against the firm which was settled at Rs.1500 at the time of 2nd realisation. Realisation expenses were estimated at Rs.20000 but these actually amounted to Rs.1200. The firm was found to pay Rs.600 out of third realisation for which no provision was made. Sonika took over stock valued at Rs.1000 at the time of 3rd realisation. Prepare a statement showing the distribution of cash. Working Problems:

1. P, Q and R share profits of a firm in the proportion of 1/2, 1/4 & 1/4 respectively. On the
date of dissolution their Balance Sheet stood as follows: Liabilities Amount Assets Amount Creditors 10000 Sundry Assets 60000 Ps Loan A/c 5000 Cash in Hand 1000 Qs Loan A/c 3000 Ps Capital A/c 20000 Qs Capital A/c 15000 Rs Capital A/c 8000 Total 61000 61000 The Assets realized Rs.45000 which were received in installments of Rs.15000, Rs.16000 & Rs.14000. Show how the proceeds should be distributed as and when received by following the proportionate capital method. 2. Ramesh, Rajesh & Rakesh are three partners in a firm and share profits & losses in the proportion of 3/10, 5/10 & 2/10 respectively. Their balance sheet on 31st December, 2001 is as follows: Liabilities Amount Assets Amount Creditors 17000 Cash in hand 4000 Capital Account Other Assets 70000 Ramesh 38000 Profit & losses A/c 10000 Rajesh 26000 Rakesh 3000 67000 Total 84,000 84,000 The partnership is dissolved and the assets are realized as follows:
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2002 January 31 February 29 March 31

Book Value of Assets realized Rs. 30000 25000 15000

Amount realized Rs. 25000 15000 10000

Rakesh is insolvent and a sum of Rs.1400 is recovered from his estate in full settlement. Prepare a statement showing how the distribution should be made by following the maximum possible loss method. 3. Orange, Apple and Banana were in partnership sharing profits and losses in the ratio of 3:2:1. They decided to dissolve the partnership and to distribute the sale proceeds as and when realized. The partners capitals were: Orange Rs.10000, Apple Rs.9000 and Banana Rs.5000. Apples loan (Cr.) amounted to Rs.3000. Sundry creditors amounted to Rs.6000. The assets were realized as under: Stock Debtors Furniture & Fittings July 3000 2000 300 August 2000 1500 100 September 2500 2000 -----October 3000 1500 -----You are required to draw up a statement showing the distribution of cash. Expenses 500 200 300 200

4. A, B and C share profits and losses in the proportions of 1/2, 1/3 and 1/6. Their balance
sheet as follows: Liabilities Amount Assets Amount Capital Account Assets 8000 A 3000 B 3000 C 2000 8000 Total 8,000 8,000 The partnership dissolved & the assets were realized as follows: 1st Realisation 1000 2nd Realisation 1500 3rd Realisation 2500 The partners desire to withdraw immediately such cash as is available for division between them rather than wait until all the assets have been sold. Prepare a Statement showing how the distribution should be made and prepare Partners Capital Accounts by following the maximum loss method. 5. Given below is the balance sheet of A, B and C on December 31, 2001 on which date they dissolved their partnership. They shared profits and losses in the ratio of 4:3:3. They decided to distribute amounts as and when feasible and to appoint C for this purpose who was to get as his remuneration 1% of the value of the assets realized other than cash at Bank and 10% of the amount distributed to the partners. Liabilities Amount Assets Amount Capital Cash at bank 275 A 15000 Sundry Assets 53725 B 7500 C 15000 37500 Sundry Creditors 16500
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Total 54,000 54,000 Assets realized as under: 1st Installment 16250 2nd Installment 12750 3rd Installment 10000 4th Installment 7500 Prepare a statement showing distribution of cash by following Maximum Loss Method and also the necessary journal entries to close the books of the firm.

6. A partnership firm was dissolved on 30th June, 2001. Its balance sheet on the date of
dissolution was as follows: Liabilities Amount Assets Amount Capital Account Sundry Assets 60000 Ram 38000 Cash at Bank 4000 Shyam 24000 Profit and Loss A/c 6000 Mohan 18000 80000 Loan A/c. - Shyam 5000 Creditors 15000 Total 1,00,000 1,00,000 The Assets were realized in installments and the payments were made on the proportionate capital basis. Creditors were paid Rs.14,500 in full settlement of their account. Expenses of realisation were estimated to be Rs.2700, but actual amount spent on this account was Rs.2000. This amount was paid on 15th September. Draw up a Memorandum of distribution of cash, which was realized as follows: 5th July 12600 th 30 August 30000 15th September 40000 The partners shared profits and losses in the ratio of 2:2:1. Give working notes.

7. Sharad, Adesh, Rama and Ajay were partners in a firm. The capital of the firm consisted of
Rs.40000 contributed originally in the proportion. The firm was dissolved on 31st March, 2002. The balance sheet as on that date was a under: Liabilities Amount Assets Amount Capital Accounts Cash 6000 Sharad 20,000 Debtors 50000 Adesh 14,000 Stock 19000 Rama 10,500 Ajay 2500 47000 Loan Sharad 5000 Rama 8000 13000 Creditors 15000 Total 75,000 75,000 th It was decided on 15 April that the net realisation should be distributed on the first of each month in the appropriate order. The realisation and expenses at the end of each month were as under;: Stock Debtors Expenses The stock was April 7000 15000 500 completely May 5000 8500 1000 disposed off. It June -----11000 250 was further July 4000 5500 150 agreed that August 2500 7000 100 Adesh should take over the remaining debts for Rs.2500
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