Partnerships

Question 1

What is a partnership?

Answer 1

An association of 2 or more persons to carry on as co-owners of a business for profit. Governed by Partnership Act 1890

Question 2

Advantages

Answer 2

No Taxation at entity level
Partners usual are active managers
Provides pooling of capital and skills
Less costly and easier to establish than a corp
Partners are not controlled by a BOD
Greater specialization in management

Question 3

Disadvantages

Answer 3

Unlimited Liability
Not easy to transfer ownership
Not easy to raise capital
No Continuity

Question 4

Limited Partnership

Answer 4

When one or more partners have limited liability. Under the 1907 Act one or more partners must be a general partner

Question 5

Mutual Agency

Answer 5

Each partner acts as an agent and can bind the partnership and partners into contracts

Question 6

Describe the Appropriation A/C

Answer 6

Net Income / Net Loss
Add: Interest on drawings
Less Bonus to Partners/ Salary
Less: Interest on Capital
Residue of Profits share

Question 7

Fixed Capital Account

Answer 7

Required that each partner have a current act
Used only to record additional investments
Current A/C is used to record appropriation of p/l and drawings

Question 8

Fluctuating Capital Account

Answer 8

Combination of Current and Capital A/C

Question 9

Advantages of Fixed Capital Account

Answer 9

Easy to calculate interest on capital
keeps original investment

Question 10

Disadvantages of Fixed Capital Account

Answer 10

Requires additional records (Current A/C)

Question 11

Change in P/L Ratio

Answer 11

1) Calculate income/loss before change and share amongst partners in OLD ratio
2)Share the balance of income/loss earned after with NEW ratio