Partnerships

Question 1

Advantages of partnerships

Answer 1

Increased capital
Larger skill range
Shared responsibility
Shared decision making
Someone to look after the busy if you’re off
Easy and cheap to set up

Question 2

Disadvantages of partnerships

Answer 2

Unlimited liability
Loss of control
Potential conflict
Not as easy to sell the business
Sharing profit

Question 3

Characteristics of a partnership

Answer 3

Formed to make profit
Follow the Partnership Act 1980
2+ partners

Question 4

Are partnership agreements required by law

Answer 4

No, however when there isn’t an agreement there is potential for confusion and disagreement

Question 5

The Partnership Act 1980

Answer 5

Applies to partnerships without an agreement
Profits and losses are to be shared equally
No interest on capital
No interest on drawings
Salaries are not allowed
If a partner puts in more money than the agreed capital this is treated as a loan and gets 5% interest per annum

Question 6

Appropriation account layout

Answer 6

Appropriation account for A and B year ended xxx
Net profit

Less;
Salaries; A
B
Interest on capital; A
B

Add;
Interest on drawings; B

Residue of profit

Share of profit; A
B