GST style - partnership business - Assignment Example

GST Style – Partnership Business About Us GST Style, a partnership business, was introduced by the three friends namely as Glenn, Stacey and Thomas officially on 1st January 2012. The business deals in retail fashion based products, which mainly includes clothing, apparels, shoes and related products. Due to the sophisticated nature of the business, the business was opened in the form of retail outlet such that the only retail outlet of the business is situated in the well off shopping arena of Birmingham city, i.e. Bullring Shopping Centre. Bullring is mainly famous for providing the customers those brands, which are highly rated and liked by the customers such as Apple in Information Technology based products, Vodafone in the field of telecommunication carrier industry and many other popular brands, which catch the attention of their respective customers. The elite class of UK is the target market of that business such that those people who can actually shop at Bullring are mainly catered and accordingly the products are designed especially to cater those customers. On demographical basis, the orthodox age group of teenagers and the early forty people are marked for the products that are being developed. Since the products are targeted to the elite and rich class, therefore a mild focused differentiation is strategy is adopted and mostly those products are offered which are not commonly available in rest of the UK market. The major quantity, designs and styles of the products are imported from the East Asian markets specifically Hong Kong and Thailand. History of Partners Glenn, Stacey and Thomas are not only the business partners who have formed this business but also they have been close friends for more than a decade. Since the time they got admission in the graduate program in the field of business studies at Birmingham University, they became good friends and shared their mutual thoughts of opening a partnership in the future time. After their graduation, all the three friends diverged into their respective fields but they remained in touch with a strong ambition of forming a partnership business. In the subsequent paragraphs, the details of each partner after his/her graduation are presented. Glenn After his graduation in good grades, Glenn got a job into a major textile firm who had a manufacturing plant in Bangkok, Thailand but had its retail outlets in UK. Glenn worked hard and became a regional marketing and brand manager of that company in hardly two years timeframe. Having earned good chunk of money in that company, Glenn decided to invest that money into some form of business in which he should also be having fair amount of knowhow. He rang up his other two friends Stacey and Thomas and discussed his idea of forming up of business of fashion-based products mainly for the rich class of UK. Stacey Stacey belongs to a family of rich entrepreneurs of Birmingham who mainly deals in kids clothing and other items related to kids. She worked herself as an entrepreneur of kids clothing outlet for around three years. After then, she received a call from Glenn and discussed the possibility of entering up into such business. Glenn with his marketing and branding expertise behind him and Stacey with her entrepreneur skills behind her approached with their other old friend Thomas to discuss the likelihood of this opportunity. Thomas Thomas, the third person in the group tracked a rather different area and joined an investment bank as management trainee position. After a year of training, Thomas was promoted a formal position of investment banker. With the high level of competence and dedication, Thomas also earned handsome amount of money from the bank and showed her eagerness when approached by his other two old friends. After deep consideration and analysis of the business, he also showed his agreement to join the hands of his other two friends in pursuit of launching up a new business. Partnership Agreement The formation of the partnership business took place on 1st January 2012 with the consent of all partners. GST Style is the name of the partnership business. Glenn, Stacey and Thomas are the names of the three partners. The partnership business GST Style officially commenced its business operations on 1st January 2012. The partnership business is intended to continue unless a reconstitution of partnership takes place where any of the existing partners can leave the partnership business or any new partner is allowed to join in the partnership business. The financial reporting period is set as six months biannually. The initial contribution made by all the partners in the form of invested capital is as follows Glenn: $15,000 Stacey: $15,000 Thomas: $20,000 This partnership agreement is based on unlimited liability born by every partner of the business. All the partners carry unlimited liability. In the event of any financial difficulty to be faced by the partnership business and any of the partners is unable to meet his/her liabilities, the other partners will pay off his/her liabilities. In the event of profits and losses to be made by the partnership business, all the profits and losses will be shared among the partners in the ratio of their initial capital invested in the business. The profit sharing ratio between the partners is set as follows: Glenn: 30% Stacey: 30% Thomas: 40% In the event of an admission of a new partner into the partnership business, any bonus from or to the new partner will be shared by existing partners in an equal ratio. Each partner is entitled with his/her own current and drawing account. Moreover, no drawings can be made in excess of the amount present in their current accounts. In the event of liquidation of the partnership business, the leftover amount will be shared by all the partners in their initial capital contribution ratio. Name: Date: Signature: Name: Date: Signature: Name: Date: Signature: Capital Contribution of Partners Since the partners belong to different areas of business historically, therefore, their share of capital contribution also reflects the similar pattern. Glenn, Stacey and Thomas contributed their capital in the ratio of 30:30:40 such that 30% each is contributed by Glenn and Stacey, and rest of 40% is filled y Thomas. Glenn provided his whole contribution the form of cash such that he provided the business around $15,000 cash. Stacey did not contributed at all in the form of cash and provided inventory worth $10,000 and furniture, fittings and equipment worth $5,000 totalling net capital of $15,000 equals with that of Glenn. Thomas on the other hand provided his support in the form of cash as well as in the form prepaid expenses to be incurred by the business. Around $10,000 were invested by him in the form of cash and with the rest of $10,000 he paid off the prepaid rent, prepaid insurance and vehicles need for the business. The following entries are recorded in respect of capital contributed by each partner. Date Particulars Debit Credit 1/1/2012 Cash 15,000     Glenn, Capital   15,000   Capital contributed by Glenn               Inventory 10,000     Equipment 2,500     Furniture 2,500     Stacey, Capital   15,000   Capital contributed by Stacey               Cash 10000     Prepaid Rent 2,500     Prepaid Insurance 500     Vehicle 7,000     Thomas, Capital   20,000   Capital contributed by Thomas     Statement of Financial Position GST Style Statement of Financial Position As at January 1, 2012   $ $ Current Asset   Cash 25,000 Inventory 10,000   Prepaid Rent 2,500   Prepaid Insurance 500   Total Current Assets   38,000       Non – Current Assets     Equipment – Computer 1,000   Furniture 2,500   Equipment – Air Conditioner 1,000   Equipment – Cash Register 250   Equipment – Vacuum 250   Motor Vehicle 7,000   Total Non-Current Assets 12,000     Current Liabilities           Non – Current Liabilities           Total Liabilities           Net Assets   50,000   Partnership’s Equity     Glenn, Capital 15,000   Stacey, Capital 15,000   Thomas, Capital 20,000 50,000       Initial 6 Months of Operations of Business GST Style completed its first six months of its business on 30th June 2012. The business performed marvellously well in almost every area of the business due to number of factors which include unexpectedly improved recognition of GST Style brand, the increase in customer’s preferences and attitudes towards fashion based products and most importantly the overall helpful economic situation of the country. The business consumed its entire inventory, prepaid rent and prepaid insurance. However, it increased its cash balance substantially well, as a result, all of the partners made some drawings for their personal use. For non-current assets, the business followed ten percent straight-line method of depreciation. The subsequent table provides the detailed trial balance of GST Style. GST Style Trail Balance As at June 30, 2012   Debit Credit Cash 73,000   Prepaid Insurance – Prepaid Rent –   Inventory –   Equipment – Computer 1,000   Accumulated Depreciation – Computer   100 Furniture 2,500   Accumulated Depreciation – TV   250 Equipment – Air Conditioner 1,000   Accumulated Depreciation – Air Conditioner   100 Equipment – Cash Register 250   Accumulated Depreciation – Cash Register   100 Equipment – Vacuum 250   Accumulated Depreciation – Vacuum   50 Motor Vehicle 7,000   Accumulated Depreciation – Motor Vehicle   700 Glenn, Drawing 1,500   Stacey, Drawing 1,000   Thomas, Drawing 3,500   Glenn, Capital 15,000 Stacey, Capital 15,000 Thomas, Capital   20,000 Sales   125,000 Cost of Sales 50,000   Rent & Rates 15,000   Insurance 1,000   Electricity 500   Decoration 5,000   Stationary 500   Salaries & Wages 10,000   Advertising 2,000   Depreciation 1,300   Total 176,300 176300 Closing Temporary Accounts Following is the table, which show how the temporary accounts are closed so that statement of comprehensive income and statement of changes in equity can be produced. Date Particulars Debit Credit 30/06/2011 Sales 125,000     Income Summary   125,000   To Close Sales Revenue account               Income summary 85,300     Cost of Sales 50,000   Rent & Rates   15,000   Insurance 1,000   Electricity   500   Decoration   5,000   Stationary   500   Salaries & Wages   10,000   Advertising   2,000   Depreciation   1,300   To Close Expenses Accounts             Income summary 39,700     Glenn, Current   11,910   Stacey, Current   11,910   Thomas, Current   15,880   Allocation of profit to each partner               Glenn, Current 1,500     Glenn, Drawings   1,500   Stacey, Current 1,000     Stacey, Drawings   1,000   Thomas, Current 3,500     Thomas, Drawings   3,500   To Close Drawings Accounts     Statement of Comprehensive Income Statement of comprehensive income is produced after all the temporary accounts are closed down. The profit is shared among the partners in accordance with the ratio highlighted in the partnership agreement. GST Style Statement of Comprehensive Income As at June 30, 2012   $ $ Sales 125,000 Less: Cost of Sales   50,000 Gross Profit   75,000 Less: Operating expenses     Rent & Rates 15,000   Insurance 1,000   Electricity 500   Decoration 5,000   Stationary 500   Salaries & Wages 10,000   Advertising 2,000   Depreciation 1,300 35,300 Net Profit   39,700       Allocation of profit to each partner     Glenn, Capital   11,910 Stacey, Capital   11,910 Thomas, Capital   15,880 Statement of Changes in Equity Statement of changes in equity is produced below that shows the movement of capital and profits in various accounts of all the partners as at 30th June 2012. GST Style Statement of changes in equity For 6 months ended as at June 30, 2012   Glenn Stacey Thomas Current at start 0 0 0 Add: Share of Profit 11,910 11,910 15,880 Less: Drawings 1,500 1,000 3,500 Current Account at End 10,410 10,910 12,380 Add: Fix Capital 15,000 15,000 20,000 Ending balance of equity 25,410 25,910 32,380 Statement of Financial Position Statement of financial position as at 30th June 2012 is presented below which provides the details of net assets and net capital of the partners. GST Style Statement of Financial Position As at June 30, 2012   $ $ Current Asset   Cash 73,000 Prepaid Insurance –   Prepaid Rent –   Inventory –   Total Current Assets   73,000     Non-Current Assets     Equipment – Computer 900   Furniture 2250   Equipment – Air Conditioner 900   Equipment – Cash Register 150   Equipment – Vacuum 200   Motor Vehicle 6,300   Total Non – Current Assets 10,700     Current Liabilities         Non – Current Liabilities         Total Liabilities         Net Assets   83,700   Partnership’s Equity     Glenn, Capital 25,410   Stacey, Capital 25,910   Thomas, Capital 32,380 83,700 Admission of a New Partner Brian One of the colleagues of Glenn at the textile firm also shared his views regarding the opportunity where he can invest some part of his savings. Having good relations with Glenn, he discussed his thoughts with Glenn. Glenn considered his interest in the field of retailing fashion-based products and took advice from the other two partners of GST Styles. After spending considerable amount of time in discussion with Brian, all three partners offered Brian to join their business. Brian accepted this proposal on 1st July 2012 and contributed around $10,000 such that $2,500 is invested in prepaid rent and rest of $7,500 are contributed in the form of cash. Following is the general entry for this contribution made by Brian. Date Particulars Debit Credit 1/7/2012 Cash 7,500     Prepaid Rent 2,500     Brian, Capital   10,000   Capital contributed by Brian     Bonus to New Partner Since the new partner is contributing around one-sixth part in the total capital of the partnership business, therefore he has been provided with the bonus of $1,872 by each of the existing partners. Therefore, the new amount of capital contributed by the new partner becomes $15,617, which is $5,617 more than the original amount invested by the new partner in the business. Existing partners’ equity 83,700 Add: Brian’s Investment 10,000 Total Equity 93,700 Brian’s Capital (93700/6) 15,617 Bonus from existing partners 5,617 Bonus from Glenn 1,872 Bonus from Stacey 1,872 Bonus from Thomas 1,872 Date Particulars Debit Credit 1/7/2012 Cash 7,500     Prepaid Rent 2,500     Glenn, Current 1872     Stacey, Current 1872     Thomas, Current 1872     Brian, Capital   15,616   To admit Brian as a partner with 1/6 interest     Equity after Admission of New Partner Due to the payment of bonus by each of the existing partners to Brian, the existing partner’s capital is reduced and because of this, the profit sharing ratio of all the partners are also changed which are highlighted as under. Total Equity for each partner Profit sharing ratio As at July 1, 2012   Glenn Stacey Thomas Brian Current Account 10,410 - 1872 10,910 - 1872 12,380 - 1872   8,538 9,038 10,508 - Capital 15,000 15,000 20,000 15,616 Total Equity 23,538 24,038 30,508 15,616           Profit sharing Ratio 25% 26% 33% 17% References Wood, Frank. and Sangster, Alan., Frank Wood's Business Accounting 2, Volume 1 (11th ed.). New York, NY: Financial Times Prent. Int. 2008. Print. Read More