Acctn 202 Partnerships Flashcards
Meaning of a Partnership
The relationship between two or more persons for the purpose of conduction business for profit (Partnership Act 1908)
Characteristics of Partnership
1) Accounting Entity
2) Agency
3) Unlimited Liability
4) Limited life
5) Agreement
6) Co ownership of property
7) Non taxable entity
Accounting entity
its a accounting entity but not a legal entity
Agency
every partner is an agent in the firm. All the partners have the authority to bing the partnership to contract
Unlimited Liability
Each partner is individually liable for the firms obligations
Limited Life
It life is limited, reasons for dissolution are
1)expiration of the partnership terms
2)accomplishment of objective
3)withdrawl or bankruptcy
4)new partner joins
Agreement
They have a written agreement detailing the rights and obligations of the partners and the operations of the partnership
Co-ownership of property
Assets contributed by partners become partnership property
Partnership Accounts
1) Asset Accounts Dr
2) Liability Accounts Cr
3) Capital Accounts Cr for partner investments
4) Current Accounts dr for partners share of partnership loss eg interest on drawings cr for partners entilements eg share of profit.
5) Drawings Accounts
Two important considerations when theres a chnage in partnership
1) Goodwill
2) Revaluation of existing assets
Goodwill
The market value of the partnership as a whole over and above the fair value of its net tangible assets
Fixed Capital Method
Capital Account
Current Account
Drawings Account
h of these is not a feature of the fixed capital balances method of accounting for partnership equity?
A.Drawings are closed off to capital accounts
B.Each partner has two permanent equity accounts, capital account and currentaccount
C.Apart from initial investment, very few adjustments are made to the capitalaccount
D.The profit and loss distribution is closed to current accounts
A drawings are closed off
he enhancing qualitative characteristics of financial information include:
A.understandability, faithful representation
B.faithful representation, relevance
C.comparability, verifiability
D.relevance, timeliness
c
Qualitatice characteristics of useful finacncial info
useful
relevant
representative
comparable
varifiable
timely understandable
if a company has created a forfeited shares reserve, this means that:
A.the company is expecting that the amounts unpaid will be collected in the next period.
B.the company is a member of the New Zealand Stock Exchange and is required to refund amounts already paid by defaulting investors.
C.the company is not a member of the New Zealand Stock Exchange and itsconstitution does not require it to refund amounts already paid by defaultinginvestors.
D.the company is holding the amounts already paid by defaulting investors in trust in order to repay them on the request of the investor.
c
a performance obligation is satisfied over time if:
A.the entity’s performance creates an asset which has an alternative use to the entity.
B.the entity’s performance does not create an asset which has an alternative use to the entity.
C.the entity does not have an enforceable right to payment for the performancethat has been completed to date.
B. The entity’s performance does not create an asset which has an alternative use to the entity: This is one of the criteria for recognizing revenue over time. If the asset being created or enhanced by the entity’s performance cannot be redirected for another use by the entity (i.e., it is customized or specific to the customer), and the entity has an enforceable right to payment for performance completed to date, then the performance obligation is satisfied over time.
