Maximum loss method
It is an alternative method of piecemeal distribution. After payment of all the outside liabilities and partners' loan, under this method, maximum possible loss an every realization is calculated. In other words, the amount available for distribution among partners is compared with the total amount of capital payable to the partners and the maximum loss is ascertained on the assumption that in future assets will not realize any amount. The maximum possible loss so ascertained is deducted from the capital balance of the partners in their profit sharing ratio and balance left in the capital account after deducting the maximum loss will be the amount payable to the partner.
If a partners' share of maximum possible loss exceeds the amount shown on credit side of such partner's capital account, then such partner should be treated as insolvent partner and his/her deficiency should be borne by solvent partners as stated under the garner vs. Murray rule. The amount standing to the credit of the partners after share of maximum loss and their share of insolvent partner's deficiency will be equal to the cash available for the distribution among the partners. This process of maximum possible loss is repeated till all the assets are disposed.
Generally, the following steps are used in case of maximum loss method:


First of all, adjusted capitals of all partners are determined by adjusting undistributed profit or loss, reserve and balance of current accounts.In the case of fluctuating capital, capital rations of all partners are calculated form adjusted capital. But, in the case of fixed capital, capital rations of all partners are calculated on the basis of original capitals.Determine maximum loss by deducting realized amount from total adjusted capitals of all partners.

Distribute the maximum loss among, the partners in this profit sharing ratio and calculate the balances of capital accounts after distributing maximum loss to all partners. In this situation, if no capital account shows a debit (negative) balance, then distribute the available cash among all partners, equal to their respective capital balance. But, in the case of negative or debit balance in a partners' capital account, such negative or debit balance should be transferred to other partner's capital accounts in the ratio of their adjusted capital using Garner vs. Murray rule. This process is repeated till the negative balance is abolished.Again, follow the step c and on next realization.