Lecture 11: Accounting for Partnerships

Question 0

What is a partnership?

Answer 0

Relation which exists between persons

Carrying on a business with a common view to profits

Question 1

What is the principle that supports the partnership?

Answer 1

Partnership act

Question 2

What is the minimum number of a partnership?

Answer 2

2

Question 3

What is the max number of a partnership?

Answer 3

20

Question 4

What are the advantages of a partnership?

Answer 4

Ease of formation
Pooling of capital, resources, expertise
Co ownership of partnership property
Sharing of profits
Partnership not subject to income tax (personal tax though)

Question 5

What are the disadvantages of a partnership?

Answer 5

Unlimited liability of partners
Mutual agency
Co ownership of partnership property

Question 6

What does unlimited liability mean?

Answer 6

In event of insolvency, personal assets may be taken to clear debts in partnership

Question 7

How is a partnership formed?

Answer 7

Agreement made orally

Writing

Question 8

Combining the capital talent and experience of 2 or more people is very

Answer 8

Convenient

Inexpensive

Question 9

Why is there an agency in ‘mutual agency’

Answer 9

Each partner is an agent of the partnership when performing acts to carry on the business

The act of a single partner is binding on the partnership

Question 11

Why is mutual agency a disadvantage?

Answer 11

The act may be negligent or wrongful

Question 12

What does it mean when there is co-ownership of property?

Answer 12

Each partner is a co-owner of it

Question 13

Why is co-ownership of property an advantage?

Answer 13

More resources can be pooled

Question 14

Why is co-ownership of property an disadvantage/

Answer 14

when partnership breaks up

each of them might not be entitled to the specific items he contributed

Question 15

Profits and losses are shared according to

Answer 15

profit sharing ratio

Question 16

The profit sharing ratio is provided in the

Answer 16

partnership agreement

Question 17

If there is no partnership agreement, profts and losses are shared_______ according to the

Answer 17

equally

partnership act

Question 18

What does it mean when a partnership has limited life?

Answer 18

it is terminated upon occurrence of certain events

Question 19

With what events is a partnership terminated?

Answer 19

death
retirement
bankruptcy of partners

Question 20

A limited life can be avoided by making

Answer 20

a provision in the Partnership Agreement

Question 21

Is a partnership subject to income tax?

Answer 21

No

Question 22

Although a partnership does not have income tax, Each partner is subjected to

Answer 22

personal income tax

Question 23

What is the scale for income tax

Answer 23

0% to 20%

Question 24

What are the 2 alternatives for formation of partnerships?

Answer 24

Limited Partnership LP

Limited Liability Partnership LLP

Question 25

What does a limited partnership consist of

Answer 25

1 general partner | 1 limited partner

Question 26

What can general partners do?

Answer 26

given right to manage partnership

Question 27

What do general partners have to bear?

Answer 27

unlimited personal liability for the debts of business

Question 28

What can limited partners do?

Answer 28

invest capital

Question 29

What are limited partners not allowed to do?

Answer 29

participate in management of business

Question 30

What do limited partners liable to ?

Answer 30

only their capital contribution | limited liability

Question 31

Who is an LLP made up of?

Answer 31

partners who are all limited partners

Question 32

Limited liability partnerships are used in professions like

Answer 32

lawyers | accountants

Question 33

What is a partnership agreement?

Answer 33

agreement written/oral regarding intentions of partners each partner's rights and duties rules governing the business

Question 34

What does a partnership agreement make provision for/

Answer 34

``` capital to be contributed partner salary interest on capital interest on drawings profit-sharing ratio ```

Question 35

When partnership agreement is silent at some points, what will take precedence

Answer 35

partnership act

Question 36

How does a partnership start?

Answer 36

each partner contributing capital in the form of cash or assets 2 or more sole propretorships/existing partnerships combine to form a larger partnership

Question 37

When sole proprietorship or existing partnership come together, what is also brought into the partnership?

Answer 37

liabilities

Question 38

The capital accounts for each partner are

Answer 38

separate

Question 39

In bringing in existing assets, the partners of the new partnership may

Answer 39

reevaluate some of the assets

Question 40

What are some liabilities an individual can bring in

Answer 40

bank overdraft creditors allowance for impairment loss

Question 41

What is the additional statement for partnerships?

Answer 41

Profit and loss appropriation

Question 42

How is the distributable profit obtained>

Answer 42

net profit+ interest on drawings

Question 43

interest on capital + partner's salaries +share of residual profits represent a partners'

Answer 43

entitlements

Question 44

What is the difference in capital account and current account

Answer 44

capital account shows initial investment, subsequent investment current account shows periodic changes to the partner's interest

Question 45

the balance in the current account shows the partner's

Answer 45

entitlement

Question 46

What are the changes in a partner's current account

Answer 46

interest on drawings interest on capital partner salary