Partnership

Question 1

What is meant by a partnership business?

Answer 1

a business in which two or more people work together as owners

Question 2

what are the advantages of a partnership business?

Answer 2

1- more capital is available
2- Different partners may have different skills that are beneficial to the business
3- The management of the business can be shared
4- The business is more efficient
5- There are more ideas
6- The responsibility is shared
7- losses can be shared
8- liquidity is improved

Question 3

what are the disadvantages of partnership?

Answer 3

1- profits are shared between more partners
2- decisions must be recognised by all partners
3- decisions may take a longer to implement
4- one partner’s actions can bind the other
partners
5- disagreements can occur
6- all partners are responsible for the debts of
the business

Question 4

What is a partnership agreement?

Answer 4

partnership agreement is the contractual relationship, either written or verbal, between partners, which covers many aspects of the business

Question 5

what do partners/owners include in a partnership agreement?

Answer 5

1- the apital contributed by each partner
2- the ratio in which profits are to be shared
3- the rate of interest to be paid on partner’s
capital
4- the rate of interest charged on a partner’s
drawings
5- salaries to be paid to partners
6- arrangement for the admission of a new
partner
7- procedure to be carried out when a partner retires or dies

Question 6

explain why each partner has both a current and capital account/ state the advantages of maintaining both current and capital account for each partner

Answer 6

1- to keep a separate record of capital
introduced/ to able to calculate interest on
capital
2- to allow easy comparison of drawings and
total profit share/ see if partner has
overdrawn on profit allocation
3- easier to see the profit retained by each
partner
4- easier to calculate interest on capital