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Question 4 (15 marks) Wendy, William and Wanda are independent website developers who have been trading in active opposition to one another for some years.
Question 4 (15 marks)
Wendy, William and Wanda are independent website developers who have been trading in active opposition to one another for some years. They decide to form a partnership, WWW Web Developers, as from 1 January 2019. The agreement set out the following basic arrangements.
- Wendy is to contribute $8,000 in cash, debtors of $12,000 and computers valued at $10,000.
- William is to contribute a lease of premises used by him, such a lease to be regarded as having a capital value of $12,500, computers of $10,000 and $6,000 in cash.
- Wanda is to contribute computers valued at $13,750 and to act as managing partner at a salary of $20,000 per year.
- Interest for the period is to be allowed partners at the rate of 8% p.a. on beginning capital but is not charged on drawings.
- Profits or losses are to be shared in the same proportions as capital contributed.
Required:
- The big disadvantage of a sole trader business is that the personal liability of the owner is unlimited the owner could lose everything. I think I will take on a partner and convert my business to a partnership. That way I will certainly reduce the chances of losing my personal assets if the business fails. Discuss.
(5 marks
- Prepare the journal entries necessary to open the records of the partnership. (Ignore GST.) 5 marks
- Assuming in the first year that the partnership made a profit of $65,000, show how this profit would be allocated each partner. 5 marks
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