Muhammad Ihtisamuddin

C1I018026
Quiz 10
1. What are the characteristics of a partnership?
There are two Characteristics
- MUTUAL AGENCY: each partner is an agent for all partnership activities, with the power to
bind all other partners by his or her actions on behalf of the partnership.
- UNLIMITED LIABILITY: Each partner is liable for all partnership debts and, in case of
insolvency, may be required to use personal assets to pay partnership debts authorized by any
other partner.

2. What should be included in the articles of a partnership?

- The types of products and services to be provided and other details of the business’s
operations
- Each partner’s rights and responsibilities in conducting the business
- Each partner’s initial investment including the value assigned to noncash asset investments
- Additional investment conditions
- Asset withdrawal provisions
- Profit- and loss-sharing formulas
- Procedures for dissolving the partnership

3. How would partners appraise an initial noncash investment value?

The noncash property is recorded at the fair value of the property at the time of the investment
and when property other than cash is invested in a partnership, the noncash property is recorded
at the fair value of the property at the time of the investment. Conceptually, the fair value should
be determined by independent valuations, but as a practical matter, the fair value of noncash
property is determined by agreement of all partners. The amounts involved should be specified in
the written partnership agreement.

4. Why do some profit-sharing agreements provide for salary and interest allowances?
A partner who devotes time to the partnership business while other partners work elsewhere may
receive a salary allowance. Salary allowances are also used to compensate for differences in the
fair value of the talents of partners, all of whom devote their time to the partnership. Another
variation in profit- and loss-sharing agreements provides salary allowances to active partners and
a bonus to the managing partner to encourage profit maximization.

5. Are partner salary allowances expenses of the partnership?

In partnership accounting, partner salary allowances are not expenses in the determination of
partnership net income. They are a means of achieving a fair division of income among the
partners based on the time and talents devoted to partnership business.
6. When a profit-sharing agreement specifies that profits should be divided using the ratio of capital
balances, how should capital balances be computed?
When profits are divided in the ratio of capital balances, capital balances should be computed on
the basis of weighted average capital balances in the absence of evidence that another
interpretation of capital balances is intended by the partners.

7. Explain how a partner could have a loss from partnership operations for a period even though the
partnership had net income
An individual partner may have a loss from his share of partnership operating activities even
though the partnership has income. This situation results if priority allocations to other partners
exceed partnership net income. For example, if net income for the A and B Partnership is $5,000
and profits are divided equally after a salary allowance of $8,000 to A, A will have partnership
income of $6,500 and B will have a partnership loss of $1,500.

8. The concept of partnership dissociation has a technical meaning under the provisions of UPA.
Explain the concept
Partnership dissociation under the Uniform Partnership Act is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on of the business, as
distinguished from the winding up of the business. Thus, the assignment of a partnership interest
to a third party by one of the partners does not, by itself, dissolve the partnership because the
assignee does not become a partner unless accepted as a partner by the continuing partners

9. If a partner sells his or her partnership interest directly to a third party, the partnership may or
may not be dissolved. Under what conditions is the partnership dissolved?
The sale of a partnership interest to a third party dissolves the old partnership if the continuing
partners accept the third-party purchaser as their partner. In this case, the relation among the
partners is changed a new partnership agreement is necessary.

10. How does the purchase of an interest from existing partners differ from the acquisition of an
interest by investment in a partnership?
When a new partner acquires an interest by purchase from existing partners, the partnership
receives no new assets because the payment for the new partner’s interest is distributed to the old
partners. Alternatively, an investment in a partnership increases the net assets of the partnership.
This difference is important in accounting for the admission of a new partner