On Partnership Accounts-Piecemeal Distribution
On Partnership Accounts-Piecemeal Distribution
On Partnership Accounts-Piecemeal Distribution
Distribution
Ms. Meenakshi
Assistant Professor
Commerce Department
Kanya Mahavidyalaya Kharkhoda
Introduction of Piecemeal Distribution
The assumption that all assets are realized immediately on the
date of dissolution and all the liabilities are paid on that date is
unrealistic. In actual practice, assets are realized gradually and
cash is distributed among different parties as and when
realized. There may be a gap of few months between the
realization of two assets. Hence, final result (profit or loss on
realization) of business is not known till all assets are realized.
In such situation, piecemeal distribution system is adopted.
As per this system first, all creditors/outside liabilities are
paid, then loans given by the partners are returned and then if
cash is realized further it would be distributed immediately
among partners without waiting for the completion of all
realizations.
Continues…
• The difficulty is how to distribute the available
cash among the partners without
ascertainment of profit or loss on realization.
And the same can not be ascertained until all
assets are realized.
• In such situation, any of the following
methods may be adopted for payment to
partners.
Proportionate Capital
Method/ Surplus Capital Maximum Loss Method
method
Proportionate Capital Method
I In this method, the capitals of partners are adjusted in their
profit sharing ratio. (This is done by taking one partner’s
capital as base.)
II The partner whose capital is in excess of others (after
adjusting in profit sharing ratio) is refunded his excess capital.
III After refunding the excess capitals, the capitals will be
automatically left in profit sharing ratio. After this , the cash
realized from assets will be distributed among all the partners
in their profit sharing ratio.
IV The unpaid balance of the capital accounts will represent loss
on realization and this loss will be exactly in profit sharing
ratio.
Illustration
• A, B and C were in partnership sharing profits and losses of 3:2:1. The
following is their Balance Sheet as at 31st Dec.,2014 on which date they
dissolved the partnership:
Liabilities Amount (Rs.) Assets Amount (Rs.)
Sundry Creditors 25,000 Cash 3,000
A’s Loan 8,000 Debtors 34,800
General Reserve 12,000 Stock 52,500
Capitals : Fixed Assets 91,700
A 94,000
B 20,000
C 23,000 1,37,000
1,82,000 1,82,000
• It was agreed to repay the amounts due to the partners as and when the
assets are realized.
Continues…
Assets realized as follows: