What Is maximum loss method in dissolution partnership
Answers
Answer:
cash paid to partner by applying profit share ratio of capital ratio. out difference between the available cash and balance in the Capital Accounts, the difference is called as maximum loss.
Explanation:
An alternative method of piecemeal distribution amongst partner is to calculate the maximum possible loss on every realisation after the outside liabilities and the partner's loan has been paid.
If a partner's share of the loss is more than the capital, he should be treated as “insolvent” and, in accordance with Garner vs. Murray, the loss should be transferred to the other partners in the ratio of capitals just before dissolution. accounts (Method to be used as per Syllabus) According to this method, the partner who has the higher relative capital, that is, whose capital is greater in proportion to his profit-sharing ratio, is first paid off.
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