Question
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
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
| Loss Absorption Potential | |||
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| 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 | ||||
| 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) |
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D. Prepare an advance plan for the distribution of cash
| Advance Cash Distribution Plan | ||||
| Order of cash distribution | Liabilities | M | D | S |
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