Theory question 103
Partnership Admission, Retirement and Dissolution(a) Explain the term fixed capital account.
(b) State three conditions that would result to a change in profit and loss sharing ratio of a partnership.
(c) Outline three circumstances that would give rise to the creation of goodwill in a partnership.
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(a) Fixed capital account: each partner's capital account stays at the agreed amount; profit shares, interest, salaries and drawings go to a separate current account.
(b) Any three: admission of a new partner; retirement of a partner; death of a partner; change in partners' capital contributions; change in partners' duties or agreement.
(c) Any three: admission of a new partner; retirement or death of a partner; change in profit-sharing ratio; sale of the business or amalgamation; conversion to a company.
Define fixed capital, then list events that change the ratio and that call for goodwill.