Understanding Piecemeal Distribution of Cash in Financial Accounting
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.
- Financial Accounting
- Piecemeal Distribution
- Partnership Dissolution
- Excess Capital Method
- Liabilities
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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
