Understanding Piecemeal Distribution of Cash in Financial Accounting

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PIECEMEAL
DISTRIBUTION OF
CASH
 
CS CHARUL PATEL
ASSISTANT PROFESSOR, DEPARTMENT OF ACCOUNTANCY
SIES COLLEGE OF COMMERCE AND ECONOMICS
 
 
 
 
Meaning
 
Picemeal distribution of cash refers to distribution of cash in parts / installments
This happens in case of dissolution of a partnership firm
 In case of dissolution , the firm has to be closed
 For this all it’s assets are sold and from the amount So realised  it’s liabilities have to be
paid
 It is not possible to sell all assets on the same day and make payment to all the
liabilities on the same day
Both of these things happen in parts / Pieces / Installments
 Hence in piecemeal distribution we shall study  how to distribute the money realised in
installments / pieces from the sale of the assets amongst its various liabilities
 
 
Types of liabilities and order of
payment
 
There are many types of liabilities and the amount available is generally limited , so we
cannot pay to all liabilities at the same time. Hence we have to decide a order of
payment for the different types of liabilities.  First all outside liabilities are paid and then
insiders are paid.
The following order of payment has to be followed
1)
Realisation / Dissolution expenses Incurred at the time of dissolution
2)
Secured liability (which is secured by an mortgage against any asset)
3)
Preferential liability ( Preference over other unsecured  liabilities –any payment to be
made to Government or employees)
4)
Unsecured liabilities ( all other remaining liabilities due to outsiders is covered here)
5)
Partners loan
6)
Partners Capitol
 
 
Methods of Piecemeal distribution of
cash
 
There are two methods of distribution of cash under piecemeal
1)
Excess Capital Method
2)
Maximum loss method
 
We have to study only Excess Capital method of Piecemeal distribution of cash as per
our syllabus
 
 
 
 
 
Excess capital method of piecemeal
distribution of cash
 
Under Excess capital method of  piecemeal distribution of cash we shall bring all the
partners capital in their profit sharing ratios , so that after payment to outsiders when at
the end we come to payment of partners capital the balance unpaid that is realisation
loss or Surplus payment made that is realisation profit, will be in profit sharing ratio as per
the requirement of Partnership provisions.
Under excess capital method we shall prepare two statements
a)
Statement of excess capital – to find out which partner has excess capital and the
order of payment for partners capital
b)
Statement of Piecemeal distribution of cash – for actual distribution of cash amongst
alll liabilities
 
 
 
 
 
 
Refer to the detailed notes and problem sheet uploaded on the website for better
understanding and solving the practical Problems
 
THANK YOU AND ALL THE BEST
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The concept of piecemeal distribution of cash involves distributing cash in parts or installments, commonly seen during the dissolution of a partnership firm. This process requires a systematic approach to prioritize and pay off various types of liabilities in a specific order. The Excess Capital Method is a key technique used in this distribution process, focusing on balancing partner capital in accordance with profit-sharing ratios.


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  1. PIECEMEAL DISTRIBUTION OF CASH CS CHARUL PATEL ASSISTANT PROFESSOR, DEPARTMENT OF ACCOUNTANCY SIES COLLEGE OF COMMERCE AND ECONOMICS

  2. Meaning Picemeal distribution of cash refers to distribution of cash in parts / installments This happens in case of dissolution of a partnership firm In case of dissolution , the firm has to be closed For this all it s assets are sold and from the amount So realised it s liabilities have to be paid It is not possible to sell all assets on the same day and make payment to all the liabilities on the same day Both of these things happen in parts / Pieces / Installments Hence in piecemeal distribution we shall study how to distribute the money realised in installments / pieces from the sale of the assets amongst its various liabilities

  3. Types of liabilities and order of payment There are many types of liabilities and the amount available is generally limited , so we cannot pay to all liabilities at the same time. Hence we have to decide a order of payment for the different types of liabilities. First all outside liabilities are paid and then insiders are paid. The following order of payment has to be followed 1) Realisation / Dissolution expenses Incurred at the time of dissolution 2) Secured liability (which is secured by an mortgage against any asset) 3) Preferential liability ( Preference over other unsecured liabilities any payment to be made to Government or employees) 4) Unsecured liabilities ( all other remaining liabilities due to outsiders is covered here) 5) Partners loan 6) Partners Capitol

  4. Methods of Piecemeal distribution of cash There are two methods of distribution of cash under piecemeal 1) Excess Capital Method 2) Maximum loss method We have to study only Excess Capital method of Piecemeal distribution of cash as per our syllabus

  5. Excess capital method of piecemeal distribution of cash Under Excess capital method of piecemeal distribution of cash we shall bring all the partners capital in their profit sharing ratios , so that after payment to outsiders when at the end we come to payment of partners capital the balance unpaid that is realisation loss or Surplus payment made that is realisation profit, will be in profit sharing ratio as per the requirement of Partnership provisions. Under excess capital method we shall prepare two statements a) Statement of excess capital to find out which partner has excess capital and the order of payment for partners capital b) Statement of Piecemeal distribution of cash for actual distribution of cash amongst alll liabilities

  6. Refer to the detailed notes and problem sheet uploaded on the website for better understanding and solving the practical Problems THANK YOU AND ALL THE BEST

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