Financial Accounting 2

Question 1 Lindsay, Donny and Henry who are forming a partnership to operate an antiques gallery, are discussing how income and losses should be distributed. Among the facts they are considering are the following: a) Lindsay will contribute cash for operations of RM100,000, Donny will contribute a collection of antiques that is valued at RM300,000 and Henry will not contribute any assets. b) Lindsay and Henry will handle day-to-day business operations. Henry will work full-time and Lindsay will devote about half-time to the partnership. Donny will not devote time to day-to-day operations. A full-time clerk in retail store would make about RM20,000 in a year and a full time manager would receive about RM30,000. c) The current interest rates on long-term loan is 8% Lindsay, Donny and Henry have just hired you as the partnership's accountant. Write a memorandum describing an equitable plan distributing income and losses. Outline the reasons why you believe this plan is equitable. According to your plan, which partner will gain the most if the partnership is very profitable, and which will lose the most if the partnership has large losses? (20 marks)