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.

1. Wendy is to contribute $8,000 in cash, debtors of $12,000 and computers valued at $10,000.
2. 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.
3. Wanda is to contribute computers valued at $13,750 and to act as managing partner at a salary of $20,000 per year.
4. 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.
5. Profits or losses are to be shared in the same proportions as capital contributed.

Required:

1. 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

2. Prepare the journal entries necessary to open the records of the partnership. (Ignore GST.) 5 marks
3. 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