CA Sourabh Agarwal (Chartered Accountant) (4240 Points)
06 March 2010hiiii everyone,
Can anyone help me out me understanding the problem of piecemeal distribution. Why that maximum loss & proportionate capital method is used and what is the concept of it ?
I think that it is used to bring capitals in their profit sharing ratio ?
Saraswathi Bai
(Senior associate)
(21 Points)
Replied 25 July 2011
These are the methods of distributing cash in piecemeal namely: (1) Surplus/Excess/Proportionate/Quotient Capital Method. (2) Maximum Possible/Notional Loss Method.
Surplus or Excess Capital Method:It is necessary to adjust the capital of the partners to the profit sharing ratio and pay excess contribution to the partners first as and when the cash is realised. This process should be repeated till the capitals become proportionate to profit sharing ratio. When once the excess contribution of the partner is paid (capitals get adjusted to PSR) the realisation of cash may be distributed to all the partners in their capital PSR.
Since the excess capital contribution is found out by comparing with PSR and paid first, this method is called Surplus/Excess Method. This is called Proportionate Capital/Quotient Method because the capitals are ought to be bought in proportion to PSR.
Maximum possible loss method:Maximum loss method is an improved method of distribution of cash as and when realised. Here at every stage of distribution of cash realised, it is assumed that there will be no more realisations and the firm is going to suffer the maximum loss. Thus, the loss calculated on an assumption is distributed to partners in their profit sharing ratio before the partner's claims are paid.
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