In the computation of a partner's Loss Absorption Power (LAP),which of the following statements is incorrect?
I.The computation of LAPs for all partners allows cash to be distributed before all partnership assets have been sold and all creditors have been paid.
II.The computation of LAPs for all partners indicates the relative strength of each partner's net capital position so that available cash is distributed in respective loss-sharing ratios.

Question

Quizplus · Accepted Answer

Both statements are correct. Computation of LAPs for partners is necessary for determining the relative strength of net capital positions and to ensure appropriate distribution of available cash. Additionally, it helps to determine the order in which partners' capital accounts will absorb loss in case the partnership suffers losses. Therefore, neither statement is incorrect.

In the Computation of a Partner's Loss Absorption Power (LAP),which