Partnership ADVICE

Question 1

Advantages of partnership:

Answer 1

-Introduce additonal capital
- May bring additional specialist skills to the business
- Risks and responsibilities shared
- Losses and debts shared

Question 2

Disadvantages of partnership:

Answer 2

• Profits shared
• Decisions may take longer
• Disagreements may occur
• Drawings taken from business by partner

Question 3

Increase in salary of worker advantage

Answer 3

• Owner makes decisions all by himself
• No disagreements about decisions
• May increase worker’s motivation and loyalty
• Worker only entitled to salary and not share of profit

Question 4

Transfer of money from bank accounts to interest-bearing deposit account
Adv and Disadv

(interest paid by bank to banker for using their bank)

Answer 4

Advantages:
- Reduce cash sitting idle in business bank account, and increase amount
-Interest earned on money transferred
- if levels of trade receivable greater than levels of trade payable, then there will be future net cash inflow

Disadvantages:

• May not be able to quickly withdraw cash without giving notice before-hand
• Will decrease working capital and liquidity
• Decrease cash flow of business
• Other uses for cash considered by partners

Question 5

Whether owner should provide their own additional capital or form partnership to rent out premises:

Additional capital:

Answer 5

• Still entitled to whole profit
• Need to consider if additional capital would provide greater return
• More capital at risk

Question 6

Form partnership to rent out premises:

Answer 6

• Partner’s skill may be useful in business
• Introduce additonal capital
• Profit would be shared
• Disagreements may arise
• Risk and responsibilites shared