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Partnership Accounts

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Partnership Accounts

  1. 1. Partnership Accounts Mr Arthur
  2. 2. Aims of the Lesson <ul><li>Partnerships?? </li></ul><ul><li>Advantages/ Disadvantages of Partnerships </li></ul>
  3. 3. Partnerships? <ul><li>A partnership is a form of business, where partners share profits </li></ul><ul><li>Consists of between 2-20 members </li></ul><ul><li>No written agreement is required but agreement is recommended </li></ul><ul><li>Examples </li></ul><ul><ul><li>Accountants </li></ul></ul><ul><ul><li>Solicitors </li></ul></ul><ul><ul><li>Dentists </li></ul></ul>
  4. 4. Advantages/Disadvantages of Partnerships <ul><li>Advantages </li></ul><ul><ul><li>Easy to form, no legal formalities </li></ul></ul><ul><ul><li>Partners can combine expertise </li></ul></ul><ul><ul><li>Combine capital </li></ul></ul><ul><ul><li>Spread workload </li></ul></ul><ul><ul><li>Share decision making </li></ul></ul><ul><ul><li>Easier to raise funds i.e. loans etc </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>More people to share in the profits </li></ul></ul><ul><ul><li>General partners have unlimited liability </li></ul></ul><ul><ul><li>Disagreements can occur </li></ul></ul><ul><ul><li>Partnership may be dissolved if partner dies </li></ul></ul>
  5. 5. Aims of Lesson 2 <ul><li>Last Lesson </li></ul><ul><li>Partnerships?? </li></ul><ul><li>Advantages/ Disadvantages of Partnerships </li></ul><ul><li>Today’s Lesson </li></ul><ul><li>Partnership Agreements </li></ul><ul><li>Section 24 of Partnership Act </li></ul>
  6. 6. Partnership Agreements <ul><li>Most partnerships create a Partnership Agreement when forming. This will include details of: </li></ul><ul><ul><li>Amount of Capital to be invested </li></ul></ul><ul><ul><li>How profits and losses should be shared </li></ul></ul><ul><ul><li>Amount of drawings allowed </li></ul></ul><ul><ul><li>Interest on Capital </li></ul></ul><ul><ul><li>Interest on drawings </li></ul></ul><ul><ul><li>Salary agreements </li></ul></ul>
  7. 7. Section 24 of Partnership Act 1890 <ul><li>When partners do not create a partnership agreement they are protected by section 24 of Partnership Act 1890. It states: </li></ul><ul><ul><li>All partners are entitled to contribute equally </li></ul></ul><ul><ul><li>Profits and losses are to be shared equally </li></ul></ul><ul><ul><li>No interest is payable on capital invested </li></ul></ul><ul><ul><li>Partners are entitled to 5% on loans given to the partnership </li></ul></ul><ul><ul><li>Accounts must be freely available to partners </li></ul></ul><ul><ul><li>No salaries </li></ul></ul><ul><ul><li>No new partners can be introduced without prior agreement </li></ul></ul>
  8. 8. Aims of Lesson 3 <ul><li>Last Lessons </li></ul><ul><li>Partnerships?? </li></ul><ul><li>Advantages/ Disadvantages of Partnerships </li></ul><ul><li>Partnership Agreements </li></ul><ul><li>Section 24 of Partnership Act </li></ul><ul><li>Today’s Lesson </li></ul><ul><li>Limited partners </li></ul><ul><li>Accounting for partnerships </li></ul>
  9. 9. Limited Partners <ul><li>Under the Limited Partnership Act 1907 a partnership may register to allow one or more partners to have limited liability </li></ul><ul><li>Limited partners may not: </li></ul><ul><ul><li>Withdraw any capital they have invested during the lifetime of the business </li></ul></ul><ul><ul><li>Manage the partnership </li></ul></ul><ul><ul><li>Makes contracts on behalf of the partnership </li></ul></ul>
  10. 10. Partnership Accounts <ul><li>In addition to a T, P and L Account, a partnership will prepare an Appropriation Account, and keep separate Capital, Drawings and Current Accounts for each partner </li></ul>

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