Topic4 Partnerships

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<ul><li><p> WHAT??</p><p>Two or more persons join together to carry on a business in common with a view of earning profit</p><p> EXAMPLE ???</p></li><li><p>Limited life changes in ownershipUnlimited liabilitypersonal assets of each partner can be taken to pay for the debts of the business.</p></li><li><p>Mutual agencyeach partner can bind the business to a contract </p><p>Co-ownership of propertiesall the assets contributed by partners to the partnership now belongs to the partnership</p></li><li><p>Advantages :</p><p>ease of formationpooling of skillsmore capital than a sole tradersharing of losses</p></li><li><p>Disadvantages</p><p>unlimited liabilitylimited lifetoo many people making decisionssharing of profits</p></li><li><p>Interest on drawingsto prevent the partners from taking out too much and too soonrevenue to the business</p><p>Interest on capitalfor the return on investment to partners expense to the business</p></li><li><p>Partners salariescompensation for managing the business expense to the business</p><p>Interest on partners loan to the partnershipto the partners who lend their money to the partnership An operating expense to the business</p></li><li><p>Profit and loss sharing ratiobased on an agreement among the partners </p><p>If the partnership agreement states only on how profit (no mention of loss) is to be shared, losses are assumed to be shared the same way as profit</p></li><li><p>No interest is allowed on capitalNo interest is charged on drawingsNo salaries allowedInterest is allowed on partners loan to the partnership at the rate of 8% per annumProfits and losses are shared equally</p></li><li><p>Statement of Comprehensive IncomeAppropriation Statement</p><p>Statement of Financial PositionFinanced by: section</p><p>Partners Account Capital Account Current Account</p></li><li><p>A worked Example from Study NotesS &amp; R Enterprise</p></li></ul>