Question
The MDS partnership has decided to liquidate. At the time, the profit and loss ratios for...
The MDS partnership has decided to liquidate. At the time, the profit and loss ratios for Murphy,
Donnelly and Sullivan were 1:1:3. The balance sheet is below.
Cash $ 30,000 Liabilities $ 20,000
Other assets 170,000 M, Capital 50,000
D, Capital 70,000
S, Capital 60,000
$200,000 $200,000
C. Using the loss absorption potential system, determine how the partners will share in the distribution of cash
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Loss Absorption Potential |
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M |
D |
S |
|
|
Capital |
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P & L ratio |
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LAP (capital/P&L) |
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Loss Absorption Potential |
Asset Distribution |
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M |
D |
S |
M |
D |
S |
|
|
P & L ratio |
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LAP |
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Net capital interest |
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Distribution to D (100 × 0.2) |
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Distribution to M & D (150 × 0.2) |
||||||
D. Prepare an advance plan for the distribution of cash
|
Advance Cash Distribution Plan |
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Order of cash distribution |
Liabilities |
M |
D |
S |
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