Question

How you will find absolute surplus capital on piecemeal distribution??

Answer 1

Gradual Realisation of Assets and Piecemeal Distribution!

It has been assumed in the working of all the illustrations so far in this chapter that all the assets are realized on the date of the dissolution, and that all expenses and liabilities are paid on that date. This assumption enables one to know immediately the profit or loss on realization which can then be transferred to the capital accounts; this determines the final amounts due to the partners. In actual practice, this assumption is far from valid.

Assets are realized and cash collected gradually. Final results are not known till quite some time. In the meantime, the cash collected is distributed among the various parties. The student remembers that in case of dissolution, first of all the outside creditors have to be paid, then if surplus remains, any loans given by the partners over and above their capitals are paid (rateably if the amount available is not sufficient) and the last of all, the partners’ capitals are paid off. It is clear, therefore, that any cash in hand or cash collected should be distributed among creditors until all of them are paid off.