Piecemeal Distribution in Dissolution: Methods & Accounting Treatment
Piecemeal distribution is a gradual cash distribution method during a firm's dissolution to ensure fair payment of liabilities and partner capitals. The process involves specific orders of payment and methods like Proportionate Capital and Maximum Possible Loss.
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Presentation Transcript
Meaning, Methods, and Accounting Treatment BY Kalpana S. Jadhav Assistant Professor
Introduction Definition of piecemeal distribution: It is a method of distributing cash gradually to partners as and when assets are realized in case of dissolution of a firm. Explanation of why piecemeal distribution is required.
Need for Piecemeal Distribution When assets are realized gradually over time. To ensure fair and logical payment of liabilities and partners capital. Avoids holding cash unnecessarily while waiting for full realization of assets.
Order of Payment in Piecemeal Distribution First: Realization expenses and liabilities related to dissolution. Second: Secured creditors (if any). Third: Unsecured creditors. Fourth: Partners capitals (as per their profit-sharing ratio or capital balance).
Methods of Piecemeal Distribution (or Excess Capital Method) 2. Maximum Possible Loss Method 1. Proportionate Capital Method
Proportionate Capital Method Steps: 1. Calculate the adjusted capital of each partner after deducting their share of losses. 2. Arrange capital in the ratio of their profit-sharing. 3. Find the proportionate capital and distribute cash accordingly. 4. Repeat the process as more cash is realized.
Maximum Possible Loss Method Steps: 1. Assume that remaining assets will not realize any further cash. 2. Calculate the maximum possible loss and adjust it in the partners capital accounts. 3. Distribute available cash accordingly. 4. Repeat until all cash is distributed.
Accounting Treatment in Piecemeal Distribution Journal Entries: 1. Cash received from asset realization: Dr. Cash Account Cr. Asset Account 2. Payment to secured creditors: Dr. Secured Creditors Account Cr. Cash Account 3. Payment to unsecured creditors: Dr. Unsecured Creditors Account Cr. Cash Account 4. Distribution to partners: Dr. Partner s Capital Account Cr. Cash Account
