ACT 3121 Intermediate Financial Accounting 1 G2 - PowerPoint PPT Presentation

1 / 16
About This Presentation

ACT 3121 Intermediate Financial Accounting 1 G2


ACT 3121. Intermediate Financial Accounting 1. G-2. Lecture 1 (12th Nov) 1 hr ... Some professional bodies may have more than 20 : accountants and solicitors ... – PowerPoint PPT presentation

Number of Views:91
Avg rating:3.0/5.0
Slides: 17
Provided by: econU4


Transcript and Presenter's Notes

Title: ACT 3121 Intermediate Financial Accounting 1 G2

ACT 3121 Intermediate Financial Accounting 1G-2
  • Lecture 1 (12th Nov)
  • 1 hr

Introduction to Partnership
  • Contents
  • Definition
  • Origins
  • General principle
  • Number of partners
  • Partnership Agreement Partnership Act 1961
  • Advantages Disadvantages

Definition (PA 1961)
  • the relationship, which subsists (exists) between
    persons carrying on a business in common with a
    view of profit

  • 2 or more persons decide to create a business
  • One with a business needs someone to help him,
    who is a position to introduce additional capital
  • 2 persons, each with separate business, decide to
    amalgamate (merge)

General principle
  • Unlimited liability
  • - should the assets of the firm be insufficient
    to meet the claims of its creditors, each partner
    will be personally responsible for ensuring that
    these claims will be met

Number of partners
  • Can range from 2 to 20
  • Some professional bodies may have more than 20
    accountants and solicitors

Partnership Agreement
  • Name and nature of the business
  • The term of partnership
  • The amount of capital contributed by each partner
  • Profit sharing ratio
  • Charge interest on drawings?
  • Provision for the preparation and audit of FS
  • The way the business should be run
  • Provision for admission of new partners or
    withdrawal by death or otherwise, of partners

1. Capital to be contributed
  • Depends on willingness and ability
  • Note the right of partners on the business
    depends on the amount of capital contributed

2. Profit sharing ratio
  • determine how much each partner will get from the
    balance of profit
  • usually determine by the total of capital
  • others skills and efforts

3. Interest on capital
  • equitable when capital contributed by partners
  • encourage partner to contribute as much as they
  • basic should be equal to the return that they
    might receive if invested elsewhere
  • charge against net profit before distributed to

4. Interest on drawings
  • Drawings amounts taken out of the business by
    partners either in cash or goods
  • to avoid cash withdrawal unnecessarily
  • partner benefits unjustifiably at the expense of
    his fellow partners
  • note cash is necessary to expand and do
  • calculated from the date of the drawings to the
    end of the accounting period and added to profit
    before charging to interest and salary

5. Salary
  • to compensate for time and expertise contributed
    to the business by partners
  • agreed by all partners

Partnership Act 1961
  • In the absence of Partnership Agreement, Section
    26 of Partnership Act 1961
  • Profits and losses shared EQUALLY 26(a)
  • NO interest on capital 26(d)
  • NO interest on drawings 26(b)
  • NO salary 26(f)
  • If partner contribute some money IN EXCESS of
    capital agreed to be contributed, he is entitled
    to 8 interest per annum 26(c)

Advantages and Disadvantages
  • Advantages
  • More capital
  • Easier expansion
  • Division of labour
  • Creative ideas
  • Shared losses

Advantages and Disadvantages
  • Disadvantages
  • Unlimited liability
  • Need for discussion
  • Disagreement
  • Difficulties on dissolution and admitting new
  • Shared profits
  • Inability to increase capital without changing
    the control of the business

Next Lecture 14th November
  • Contents
  • Discussion and examples for profit sharing ratio,
    interest on capital, interest on drawings
  • Fixed capital vs. Fluctuating capital a/c
  • Partners loan a/c
  • Balance sheet
  • More examples
Write a Comment
User Comments (0)