(a) Explain the term fixed capital account. (b) State three conditions that would result in a change in the profit and loss sharing ratio of a partnership. (c) Outline three circumstances that would give rise to the creation of goodwill in a partnership
Explanation
(a) A fixed capital account: - This is a type of capital account in a partnership - It is credited with the initial capital contribution of the partners and any addition to the capital. - It is debited with any capital withdrawals by partners. (b) Conditions that would result in a change in profit and loss sharing ratio of a partnership: i. On the admission of a new partner ii. On the retirement of a partner iii. When there is a change in capital contribution iv. On the death of a partner v. On the resignation of a partner vi. When there is a change in status of a partner, e.g. from dormant partner to an active partner vii. On the amalgamation of partnerships viii. When there is a takeover of a partnership ix. Where profit and loss sharing ratio is based on capital contributions, additions, or withdrawals of capital (c) Circumstances that would give rise to the creation of goodwill in partnerships are: i. One the admission of a new partner ii. Change in the profit and loss sharing ratio iii. On the retirement of a partner iv. On amalgamation of partnership v. On dissolution of a partnership vi. On the death of a partner vii. Takeover or purchase of a partnership by another business viii. On the resignation of a partner
