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Acc AS > Partnerships > Flashcards

Partnerships Flashcards

1
Q

Define the term partnership

A

A firm/ business in which two or more people are working together as owners with a view to make profit

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2
Q

Name the features of a partnership agreement

A
  • capital to be contributed by each partner (capital can also be resources, not just money)
  • ratio in which profits/losses are shared
  • rate of interest to be paid on loan
  • salaries to be paid
  • rate of interest to be paid on capital before profits are shared
  • rate of interest to be charged on partners drawings
  • arrangements for admission of new partners
  • procedures to be carried out when partners retire/die
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3
Q

What is the position if there is no partnership agreement?

A
  • profits and losses are to be shared equally
  • no interest is to be allowed on capital or charged on drawings
  • salaries are not allowed
  • if a partner invests a sum of money in excess of the capital agreed, he is entitled to interest at a rate of 5% p.a. on such advance
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4
Q

Name the reasons why people make use of multiple ownerships

A
  • capital required is more than one person can provide
  • many people want to share management
  • partners can be members of own family
  • experience and ability required in managing business s not found in one person alone
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5
Q

Name the advantages and disadvantages of partnerships

A
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6
Q

Name the reasons why businesses change from sole trading to partnerships

A

-Sole trader = more work
-sole decision maker/nobody to share ideas with
-sole capital provider
-sole risk bearer
-lacks skills and expertise to run business fully
-no continuity
-more difficult to obtain loan
-no cover in times of sickness and holidays

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7
Q

What is the importance of appropriation?

A

Appropriation account is an intermediary account between the income statement of the partnership and the individual current accounts of each partner
The purpose of the appropriation acc is to allow adjustments to be made to the net profit/income from the profit and loss acc before distribution of any residual net income is made to the partner capital accounts

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8
Q

Define interest on capital

A
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9
Q

Define interest on drawings

A
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10
Q

Define partner salaries

A
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11
Q

Define interest on loan in partnerships

A
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12
Q

How does an appropriation account look?

A
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13
Q

Differentiate between fixed and fluctuating capital accounts

A
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14
Q

Name the reasons why business may prefer fixed capital accounts

A
  • a debit balance acts as a warning
    -makes it easier to calculate interest on capital
    -partners are able to see amount invested
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15
Q

What is the importance of a current account

A

It shows any changes in capital resulting from profit or drawings when using the fixed capital account format

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16
Q

How does a current account look?

A
17
Q

How does the statement of financial position of partnerships look?

A
18
Q

Define goodwill

A

It’s an advantage a person gets by continuing to carry on a business which has been carried on for some time previously
It’s an intangible asset

19
Q

Name the reasons for goodwill

A
  • reputation of a business
  • location of the business
  • products and services provided by the business

-number of regular customers
- experience of reliable staff
- contacts with suppliers
- experienced and efficient work force
- possession of brand names or trademarks

20
Q

How is a goodwill account that is maintained treated?

A
21
Q

Name the reasons for goodwill

A
22
Q

Explain reasons why a partnership may be dissolved

A

-disagreement among the partners on how the business should be run
-the business is being taken over by another
-ill-health, death or retirement of a significant partner
-expansion into a limited liability company

-poor business performance left the partners with no other choice but to dissolve
-loss of a significant customer or supplier forced partners to dissolve

23
Q

What are the steps for dissolving a partnership?

A

1- open capital, current and bank accounts with their opening balances
2- transfer the current account balances to the capital accounts
3- close off all asset (not bank) accounts to the debit side of the realisation account
4- record the amount received for the assets on the credit side of realisation and the debit side of bank
5- pay all liabilities and expenses by crediting bank
6- close off all expense and income accounts to the realisation
7- calculate the profit/loss on realisation (difference in realisation account divided by profit sharing)
8- calculate the payment to the partner (difference between the debit and the credit side of the capital account)
9- make the payment to the partners in the bank account

Acc AS (12 decks)

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