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Partnership Accounting - Coursework Example

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Partnership Accounting

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 agree ...Show more

Summary

1. Cash $ 200,000
Capital – Sammy $ 200,000


2. Cash $ 300,000
Capital - Sammy $ 200,000
Goodwill $ 100,000
Author : hartmanndella
Partnership Accounting essay example
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