6) Maximum Loss - Total of capital A/c.
Balance less
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available cash
Explanation:
- The "Maximum Loss Method" has several steps.
- First, all out-of-pocket liabilities have to be paid.
- Then, if there was a loan, it has to be paid.
- Capital has to be paid to partners.
- Find the difference between the available cash and the amount in the Capital Accounts whenever cash is received; this discrepancy is known as the maximum loss.
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