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
	M	D	S
Capital
P & L ratio
LAP (capital/P&L)

	Loss Absorption Potential			Asset Distribution
	M	D	S	M	D	S
P & L ratio
LAP
Net capital interest
Distribution to D (100 × 0.2)
Distribution to M & D (150 × 0.2)

D. Prepare an advance plan for the distribution of cash

Advance Cash Distribution Plan
Order of cash distribution	Liabilities	M	D	S