What does a debit amount mean on a current account?
This means a partner has taken out more than their share of profits than they were entitled to
Interest on capital is found on the debit side of the current account. True or False?
False - This is found on the credit side
Salaries will be found on the credit side of the current account. True or False?
True
Define goodwill
Goodwill is an intangible asset that accounts for the excess purchase price of another company.
What are 2 advantages of a partnership business?
More capital can be raised with additional partners or partners can help bring extra skills or responsibility is shared
Name one method of calculating goodwill
1) Average sales method, 2) Annual Fees Method , 3) Super profits method
What does interest on capital mean?
if the partner’s capital is unequal to the profit-sharing ratio, this is used to compensate for partners who invested more capital than others
Give any 2 reasons why someone would pay for goodwill
1) Good employees may come with the business, 2) Having a good location , 3) Customer loyalty, 4) Business has a good reputation
On a partners current account drawings and interest on drawings are found on the debit side of the account. Is this True or False?
True
What does an appropriation account do?
refers to a breakdown of how a firm's profits are divided up i.e how owners of a business split losses and profits
Is interest on capital added or subtracted from undistributed profits in the appropriation account?
Subtracted
In the appropriation section interest on drawings is added to net profit. True or False?
True
What is a partnership deed and why may it be helpful to have one created?
Partnership deed is a formal contractual agreement among all partners to agree to terms and conditions of a partnership and it helps to resolve potential issues
Why would a partnership admit a new partner?
Need of more capital, need for new skills or for the purpose of replacing a member
What are 2 disadvantages of a partnership?
Partners have unlimited liability in most cases (at least 1 partner) or capital is still limited in most regards or difficult to transfer partnerships
Salaries and other performance related payments are subtracted in the appropriation account. True or False?
True
What does interest on drawings mean?
To deter the partners from taking out cash unnecessarily, the concept can be used of charging the partners interest on each drawing or withdrawal
Net profit before any distributions were $10,000 and a partner had to get a salary of $1500 also he was charged drawing of $2000 how much profits will remain after calculations?
12,000 - 1500 = 10,500
Why is fixed capital accounts preferred over fluctuating capital accounts?
Because it is easier to located situations when a partners takes excess amounts of money out of the business
How are profits and losses shared in a partnership?
According to a profit and loss sharing ratio determined by the partnership
Share of profits is found on the credit side of the current account. True or False?
True
If a partnership agreed to share a profit of $15,000 amongst 3 members equally what would be each persons share of profit?
15,000 / 3 = $5000 each
Define a partnership business
A partnership is a business that has 2 to 20 owners who all work together with the main aim of making profits and also who shares these profits/losses