【正文】 ngaged in highrisk venture capital projects PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 7 ? Husband and Wife also form a partnership but might not be looking for profit (love, panionship or a lot more) Some partnership exception, if you want to know more, look it up from your text. Advantages and disadvantages of partnerships Advantages ? Combining skills and resources of 2 or more individuals ? Ease of formation ? Not subject to as much government regulation as panies ? Ease of decision making ? No taxation on partnership profits Disadvantages ? Mutual agency ? Limited life ? Unlimited liability ? Partners must be able to work together PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 9 The partnership agreement ? A written agreement specifying such details as … – Names and contributions of the partners – Rights and duties of partners – Basis for sharing ine or loss – Provision for withdrawals of assets – Procedures for settling disputes – Procedures for withdrawal or addition of a partner – Rights and duties of surviving partners in the event of a partner’s death PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 10 BASIC PARTNERSHIP ACCOUNTING ? Major accounting issues in relation to partnerships are – Forming a partnership – Dividing profit or loss – Preparing financial statements PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 11 Forming a partnership ? Initial investment – Recorded at the fair value of the assets at the date of their transfer to the partnership – Values assigned must be agreed to by all of the partners ? Once partnership has been formed – Accounting is similar to accounting for transactions of any other type of business anisation PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 12 LO2 Forming a partnership continued ? Example – Carrying amount and fair value of assets invested PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 13 Carrying amt Fair value Cash $ 8 000 $ 9 000 $ 8 000 $ 9 000 Office equipment 5 000 4 000 Accum. depreciation (2 000) Accounts receivable 4 000 4 000 Allow. for doubtful debts (700) (1 000) $11 000 $12 300 $12 000 $12 000 Forming a partnership continued – Journal entries to record investments PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 14 Cash 9 000 Accounts Receivable 4 000 Allowance for Doubtful Debts 1 000 T. Jones, Capital 12 000 (To record investment of Jones) Cash 8 000 Office Equipment 4 000 A. Gibson, Capital 12 000 (To record investment of Gibson) Dividing profit or loss ? Partnership profit or loss is shared equally unless the partnership contract indicates otherwise ? Profitandlossratio is used to identify basis for dividing profit and loss ? Partner’s share of ine or loss is recognised in the accounts through closing entries PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 15 LO3 Dividing profit or loss continued Closing entries: 1. DR each revenue account for its balance and CR Profit and Loss Summary for total revenue 2. DR Profit and Loss Summary for total expenses and CR each expense account for its balance 3. DR (CR) Profit and Loss Summary for its balance and CR (DR) each partner’s capital account for their share of profit (loss) 4. DR each partner’s capital account for the balance in that partner39。1 Chapter 13 Accounting for partnerships PowerPoint presentation by Dr Anne Abraham University of Western Sydney 169。 2020 John Wiley amp。s drawing account and CR each partner’s drawing account for the same amount PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 16 Dividing profit or loss continued – Example ? Partnership profit for year is $32 000 ? Partners share profit and loss equally PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 17 L. Cooke, Current 8 000 D. Kam, Current 6 000 L. Cooke, Drawings 8 000 D. Kam, Drawings 6 000 (To close drawings accounts to current accounts) Profit and Loss Summary 32 000 L. Cooke, Current ($32 000 x 50%) 16 000 D. Kam, Current ($32 000 x 50%) 16 000 (To transfer profit to partners’ current accounts) Dividing profit or loss continued Profitandloss ratios Typical profitand loss ratios include: 1 A fixed ratio – expressed as a proportion (6:4), a percentage (70% and 30%), or a fraction (2/3 and 1/3) 2 A ratio based on either: – capital balances at beginning of year or – average capital balances during year PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 18 Dividing profit or loss continued 3 Salaries to partners and the remainder on a fixed ratio 4 Interest on partners’ capital balances and the remainder on a fixed ratio 5 Salaries to partners, interest on partners’ capitals, and the remainder on a fixed ratio PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 19 Dividing profit or l