Topic 1 - Partnerships

Question 1

Advantages of a partnership (3)

Answer 1

New capital
New ideas, skills and experience
Greater specialization which leads to greater skills and better decision making

Question 2

Disadvantages of a partnership (4)

Answer 2

Difficult to find a partner with capital, same personality, complementary skills and time
Shared profits
Shared decision making leads to slower decision making
Partners are legally responsible for eachother. Trust is a issue

Question 3

Appropriation Account structure

Answer 3

(B/d) Profit for the year (Cr)
ADD: Interest on drawings (Cr)
LESS: Salaries and Interest on capital (Dr)
PROFIT SHARE (Dr)

Question 4

Current Account

Answer 4

(B/d) (Cr) 
Interest on drawings (Dr)
Drawings (Dr)
Salaries 
Interest on capital (Cr)
PROFIT SHARE (Cr)

Question 5

Revaluation

Answer 5

A revalue of all assets of a business

Opposite entry in the Capital Account

Question 6

Realisation Account Structure

Answer 6

Value of assets (Dr)
Dissolution costs (Dr)
Discount allowed (Dr)
Profit from realisation (Dr)

Proceeds from sale of assets (Cr)
Other income (Cr)
Discount received (Cr)
Loss on realisation (Cr)

Question 7

Realisation Notes

Answer 7

Cash is not included

Realisation is a temporary account

Question 8

Garner vs Murray

Answer 8

If the partner is insolvent, other partners must pay the debt in a ratio of the last agreed capital found on the last year’s Balance Sheet

Question 9

What goes in each Capital Account

Answer 9

FIXED CAPITAL ACCOUNT:
deliberate injection of capital
change in structural nature

CURRENT ACCOUNT
everything from an appropriation account and drawings

Question 10

Options for having Capital Accounts

Answer 10

Split Fixed Capital Account and Current Account
Or
Single fluctuating Capital Account

Question 11

Advantages and disadvantages of split Capital Accounts

Answer 11

+ Quick access to partners’ balances = easier to identify a Dr balance
+ Intrest on Capital is easier to calculate
+ Improves financial control

• Complex and time consuming

No legal requirement to have split Capital Accounts

Question 12

What does the Partnership Act 1890 say?

Answer 12

Profits shared equally
no salaries
no interest on drawings
no interest on capital
partners can receive 5% interest on loans to the business