Piece-Meal Distribution Method — Distribution of Funds

Panjab University – Important Questions | Curated by Jeevansh Manocha, Student at Government College Ludhiana (East)-

Meaning of Piece-Meal Distribution

The Piece-Meal Distribution Method refers to the process of distributing cash to partners in instalments when the firm's assets are realised gradually during the dissolution of the firm. Since all assets are not sold at once, the available cash must be distributed carefully so that no partner receives more than what is legally due.

This method ensures an equitable and safe distribution of cash based on partners’ capital balances and profit-sharing ratios, keeping in mind that future losses on unsold assets may arise.

Objectives of Piece-Meal Distribution

Methods of Piece-Meal Distribution

There are two recognised methods:

  1. Proportionate Capital Method
  2. Maximum Possible Loss Method

1. Proportionate Capital Method

This method is used when partners share profits equally or in a simple ratio. The idea is that partners having excess capitals (over proportionate capital) are paid first.

Steps:

  1. Calculate proportionate capitals based on profit-sharing ratio.
  2. Find which partner has excess capital.
  3. Distribute available cash to partners with excess capital until capitals become proportionate.
  4. Then distribute future instalments equally or in the profit ratio.

2. Maximum Possible Loss Method (Most Widely Used)

Under this method, at each stage of distribution, it is assumed that all unsold assets will become worthless. The possible loss is charged to partners’ capitals in their profit-sharing ratio.

Steps:

  1. Find cash available for distribution after paying liabilities and realisation expenses.
  2. Assume remaining unsold assets will result in maximum possible loss.
  3. Distribute this assumed loss among partners in the profit-sharing ratio.
  4. Adjust partners’ capital accounts accordingly.
  5. Any partner whose capital becomes negative is treated as insolvent; his deficiency is borne by other partners (Garner v. Murray rule).
  6. Distribute available cash only to partners whose capital balances are positive.

Table Representation — Logical Flow of Cash Distribution

Step Action Purpose
1 Realisation of some assets Cash becomes available for distribution
2 Pay outside liabilities To protect third-party creditors
3 Deduct realisation expenses To know actual cash available for partners
4 Assume maximum possible loss Ensures safe distribution
5 Distribute assumed loss among partners Capital balances adjusted logically
6 Identify partners eligible for cash Only positive capital partners receive money
7 Distribute cash instalment Safe payment based on adjusted capitals

Conclusion

Piece-Meal Distribution ensures fair and safe distribution of cash during dissolution when assets are realised slowly. It prevents excess payment to any partner and protects the interests of all partners. Among the two methods, the Maximum Possible Loss Method is more popular because of its accuracy and logical approach.

This answer forms part of a carefully curated set of important questions that have frequently appeared in past university examinations and therefore hold a high probability of reappearing in future assessments. While prepared with academic accuracy and aligned to the prescribed syllabus, these solutions should be treated as high-quality preparation material rather than a guaranteed prediction of any upcoming exam paper.