The capital balances,prior to the liquidation of the XYZ partnership,were as follows: X,Y,and Z share profits and losses in the ratio of 5:3:2.As a result of a loan,the partnership owes Y $80,000.Using the information above,which partner has the highest Loss Absorption Power (LAP)prior to liquidation?

Question

The capital balances,prior to the liquidation of the XYZ partnership,were as follows:  X,Y,and Z share profits and losses in the ratio of 5:3:2.As a result of a loan,the partnership owes Y $80,000.Using the information above,which partner has the highest Loss Absorption Power (LAP)prior to liquidation?

Quizplus · Accepted Answer

Loss Absorption Power (LAP) is the amount of loss that a partner can bear in case of liquidation. LAP is calculated by subtracting the partner's capital balance from the total partnership liability. In this case, the partnership owes Y $80,000, which means Y's LAP is $210,000 ($290,000 - $80,000). X's LAP is $100,000 ($300,000 - $80,000) and Z's LAP is $70,000 ($240,000 - $80,000). Therefore, Y has the highest LAP among the partners.

The Capital Balances,prior to the Liquidation of the XYZ Partnership,were