Problems due to Piecemeal realizations
These interim distributions give rise to two problems:
- Partners have not always contributed capitals in the same ratio as that in which they share profits;
- There will always be uncertainty of future realizations
These two problems point in the same direction: how does one pa cash to partners in such amounts that the partner will never be asked to return any at a later date as excess?
The distribution has to be made in such a way each partner only receives cash after considering all possible gains and losses attributable to that partner at that stage. Two methods have been developed to accomplish this;The
- maximum possible loss method
- The surplus capital method