Partnerships

Question 1

What is a partnership

Answer 1

A partnership is when two or more people form a business with a view to making a profit.

Question 2

What are the 4 characteristics of a partnership?

Answer 2

1. Unlimited liability,
2. Mutual agency,
3. Co-ownership of property
4. They are non- tax paying entities.

Question 3

How can a partnership be formed?

Answer 3

A partnership can be formed through either a written contract (recommended), a verbal contract, or through your actions or conduct (a partnership by estoppel).

Question 4

When you form a partnership, at which cost do you record the value of the assets?

Answer 4

Upon partnership formation, you record the assets at the fair value, also called the market value, or agreed upon value.

Question 5

What are the steps involved in liquidating a partnership?

Answer 5

To liquidate a partnership, you must first sell all your assets. You will then only have cash remaining. The cash must be used to pay off all your liabilities. Then the remaining cash will be distributed to the partners in the amount of their equity balance. Then the partnership will have $0 Assets, Liabilities and Equity.