Partnerships

Question 1

Define a partnership

Answer 1

A business in which to or more people work together with the goal of making a profit

Question 2

Suggest four REASONS for multiple ownership

Answer 2

• CAPITAL required exceeds what one person can provide
• EXPERIENCE and management ability required is more than found in one person
• SHARE management tasks
• Partners are often FAMILY

Question 3

Name five CHARACTERISTICS of a partnership

Answer 3

• Formed to make a PROFIT
• Must obey ownership LAW
• Minimum 2 max 20
• Each partner must pay a share of DEBTS
• UNLIMITED liablility

Question 4

Name four ADVANTAGES of a partnership

Answer 4

• Additional FINANCE available
• Each partner’s skill, knowledge and XP can be used to the best advantage
• Management responsibilities can be SHARED
• RISKS involved are shared

Question 5

Is a partnership a good form of business for a tranding business?

Answer 5

No, but it is good for a service business

Question 6

Name five DISADVANTAGES of parterships

Answer 6

• PROFITS shared
• Joint policy DECISIONS must be followed by all parters
• An ACTION by one partner affects all the others
• Decisions take LONGER
• DISAGREEMENTS can occur

Question 7

What would usually be found in a partnership agreement?

Answer 7

• Procedures for ADMISSION of new partners
• SHARING of profits and losses
• Rate of INTEREST on capital

Question 8

Explain the importance of the APPROPRIATION account

Answer 8

Shows how the net profit is SHARED between partners. Also shows all APPROPRIATIONS required by the partnership agreement

Question 9

Explain the importance of the CURRENT account

Answer 9

Partner’s PERSONAL account. Anything to which the partner is entitled is CREDITED

Question 10

What is a FIXED capital account?

Answer 10

• Capital and current accounts are kept SEPERATELY
• Capital account fixed by INVESTMENT
• Current account consists of PROFITS, interests, salaries, etc

Question 11

What is a FLUCTUATING capital account?

Answer 11

• Profits, salaries, etc are CREDIT in the capital account

- Drawings and interest thereon is DEBITED

Question 12

What does the Partnership Act state?

Answer 12

• Profits and losses shared EQUALLY
• No interest on CAPITAL
• No interest on DRAWINGS
• No SALARIES
• Money in excess = 5% interest PA