Partnership Accounting - Coursework Example

?PARTNERSHIP ACCOUNTING Partnership Accounting and Section # of Cash $ 200,000 Capital – Sammy $ 200,000 2. Cash $ 300,000 Capital - Sammy $ 200,000 Goodwill $ 100,000 Goodwill $ 100,000 Capital - William $ 60,000 Capital - Frank $ 40,000 3. Capital - William $ 87,500 Capital - Frank $ 87,500 Capital - Sammy $ 175,000 4. General Partnerships is that all partners have unlimited liability. This means that if a business is not able to pay back its debts, the partners are held responsible to pay the debtors back and they can be forced to sell of their personal assets in order to repay the debt. Only under certain circumstances, there can be a partner with limited liability; however that partner does not take part in the management of the business. Under Limited Partnerships there exist some partners whose liability is limited to the contribution of capital in the business. The resignation, retirement or death of such partner does not cause the dissolution of the firm. However, one partner has to have unlimited liability while the partners with limited liability do not take part in the management of the business. Also, such a partnership has to be registered. Joint Venture Partnership is similar to a general partnership, however it lasts for only a certain time period or for a certain project. Usually two companies share the costs, risks and benefits by running a project. However, a written agreement is not necessary. 5. The two methods of recording changes in the membership of a partnership are Bonus Method and Goodwill Method. Under bonus method, the assets accounts increases by the amount of capital contributed by the new partner. Any access amount paid to acquire the interest in the business is credited to the respective partners account. However, under goodwill method, a goodwill account is opened to account for this access amount. It is an intangible asset. 6. A. The list of provisions is: 1) Nature of the partnership  2) Contributions to the partnership 3) Allocation of profits and losses 4) Interest on Capital 5) Interest on Drawings 6) Management Duties 7) Policy upon admission or retirement of partners. 6. B. The articles of partnership are very significant as it outlines the nature of the business, the names of the partners, their addresses, the address of the business. Also it includes the duties of each partner, their profit and loss sharing ratios, any salaries if applicable. It has clauses relating the percentage of interest of capital or interest charged on drawings. It may also contain the policy upon admission or retirement of a partner. All the partners and witnesses sign the articles of partnership agreement. Apart from highlighting the various factors relating to the business, it can serve as a legal document. Many partners contribute their capital, labor and skills to the business which has high risk associated with it. Therefore, there is a possibility that there is disagreement among the partners over assignment of duties, division of profit or loss or the admission of a new partner. In case a partnership agreement has not been framed and signed, this can lead to lawsuit. However, if a lawyer is involved and the articles of partnership are stated, it resolves conflict easily as all partners can refer to it. For instance, a dispute arises among distribution of profits among partners, it can be served as a legal document in the court and the conflict can be easily resolved. To avoid legal implications, it is always better to have a partnership agreement to prevent any partner from violating the agreement. It is signed to protect the interest of all partners. Discussion Board The partnership agreement is a legal document that not only serves in the interest of the partners but the government as well. The agreement not only covers the type of the business that it will carry but other important aspects. Many a times the profit and loss sharing ratio is different from the capital ratio, in such cases partnership agreement acts as necessary document which can be referred. Although in the case discussed the partners have a good understanding of each other yet one cannot guarantee that there will not be any issue that may arise in the future. Therefore, the partnership agreement also serves as a written document that not only inculcates this possibility but also serves as a solution by referring the method by which the dispute will be resolved. Another important aspect that these partners are ignoring is the possibility of another partner who may join the business in the future. In such cases the current partner may use the agreement for bidding when the new partner who wishes to join in. Moreover, the agreement serves as a document that distinguishes the role of one partner from another, while it also highlights the rights and duties of each partner. (Ghani, 2007) References Administrator (2013) Why You Should Have a Partnership Agreement. [online] Available at: http://www.dwt.co.uk/commercial/partnership-agreement.html [Accessed: 20 Apr 2013]. Business-law.lawyers.com (n.d.) Joint Venture - What Is a Joint Venture | Lawyers.com. [online] Available at: http://business-law.lawyers.com/business-formation/Joint-Ventures-Are-Created-for-a-Specific-Purpose-and-Time.html [Accessed: 18 Apr 2013]. Companylawsolutions.co.uk (1890) Partnership agreements. [online] Available at: http://www.companylawsolutions.co.uk/agreements_partnerships.shtml [Accessed: 20 Apr 2013]. Frettens.co.uk (2012) Why have a Partnership Agreement?. [online] Available at: http://www.frettens.co.uk/blog/2012/04/why-have-a-partnership-agreement/ [Accessed: 20 Apr 2013]. Ghani, M. (2007). Principles of Accounting. Lahore: Pak Imperial Book Depot, pp.494-495. Sba.gov (n.d.) Partnership | SBA.gov. [online] Available at: http://www.sba.gov/content/partnership [Accessed: 18 Apr 2013]. Singh, S. (1907) Kinds of Partnership and its advantages and disadvantages. [online] Available at: http://www.preservearticles.com/2012022323658/kinds-of-partnership-and-its-advantages-and-disadvantages.html [Accessed: 18 Apr 2013]. Unknown. (2013) Untitled. [online] Available at: http://belkcollegeofbusiness.uncc.edu/jmcathey/6260/outlines/Partnerships_Out.pdf [Accessed: 18 Apr 2013]. Vanwinkle, J. (1998) The Business Partnership Agreement. [online] Available at: http://suite101.com/article/the-business-partnership-agreement-a199952 [Accessed: 18 Apr 2013]. Read More