Summary Of Partnership Business Operation And Admission Of New Partner

Formation of a partnership

A partnership business has been formed by 3 people, John, Ricky and Harry. The name of the business is “Chilli chicken”. The trading address of the business would be 242 Arden St, Coogee NSW 2034, Australia. The contact number of the business would be + 61 2897548621. ABN of the business would be 2897548621. The business would be a partnership business. The business would be a restaurant business which offers various food products and the beverages to the company. The location of the business would be at the centre of the business.

The product and services list of the business has been prepared which would be offered to the target customers of the business. The competition of the business is average as the products and the services of the business would be competitive and delicious in the market. All the partners of the business are qualified enough. John has masters’ degree in hospitality, Ricky is better in handling the marketing activities and the Harry has taken his degree in finance. All of the partners have contributed similar amount into the business.

	Partner’s contribution
John	$ 50,000 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
Ricky	$ 50,000
Harry	$ 50,000

The assets and the required equipment of the business have been bought from the contribution of the partner. The below equipment has been brought for the business.

Application of funds:
Capital expenditure:	Cost	Depreciation
Delivery van	$ 16,000	15.00%
Kitchen equipment	$ 12,000	15.00%
Land	$ 30,000
Building	$ 40,000	4.00%
Stock	$ 2,000
Formation expenses	$ 1,500	5 years
Wages for 3 months	$ 1,800
Electricity & water for 3 months	$ 1,500
Production cost for testing and trial run	$ 1,000
Advertisement	$ 1,000
		106800.00

The business would be started at the beginning of the January.

Journal entries:

Journal Entries
Date	Particulars	LF	Debit	Credit

Jan-01	Bank a/c		150000
	John’s Capital a/c			50000
	Ricky’s capital a/c			50000
	Harry’s capital a/c			50000

Jan-01	Delivery van		$ 16,000
	Kitchen equipment		$ 12,000
	Land		$ 30,000
	Building		$ 40,000
	Stock		$ 2,000
	Creditors a/c Bank a/c			$ 30,000 $ 70,000

Jan-01	Formation expenses		$ 1,500
	Wages for 3 months		$ 1,800
	Electricity & water for 3 months		$ 1,500
	Production cost for testing and trial run		$ 1,000
	Advertisement		$ 1,000
	Bank a/c			$ 6,800

(Kruth, 2013)

Balance sheet:

Balance Sheet
As on Jan, 1
Assets
Cash	$ 73,200
Advanced wages	$ 1,800
Advanced electricity	$ 1,500
Advanced production cost	$ 1,000
Advanced advertisement	$ 1,000
Current Assets	$ 5,300
Noncurrent assets
Delivery van	$ 16,000
Kitchen equipment	$ 12,000
Land	$ 30,000
Building	$ 40,000
Stock	$ 2,000
Noncurrent assets	$ 100,000
total Assets	$ 105,300
Liabilities and Equity
Creditors	$ 30,000
Total liabilities	$ 30,000
Owner’s contribution	$ 75,300
Total liabilities and equity	$ 105,300

(Krantz, 2016)

Partnership agreement:

Refer to other file.

Part B: Operation of a partnership:

The business would follow the going concern concept as long as the partners are willing to run the business, it would be in operations. The business would be a limited liability business where the profit and loss would be shared in equal proportions. The business planning explains that the business would be able to reach over the $ 10000 net profit (Kinsky, 2011).

The partnership agreement explains that the capital of the partners is fixed. It could not be withdrawn or additionally invited by the partners in the business. The profit and losses would be allocated to capital account and 5% and 20% would be charged on fixed capital and the drawings of the partners. The partners would also be eligible to get fixed salary of $ 800 annually (Kaplan and Atkinson, 2015).

Journal entries:

Journal Entries
Date	Particulars	LF	Debit	Credit
31-Dec-18	Interest on capital a/c		$ 7,500
	John’s current account			$ 2,500
	Ricky’s current account			$ 2,500
	Harry’s current account			$ 2,500

31-Dec-18	Profit and loss appropriation a/c		$ 7,500
	Interest on capital a/c			$ 7,500

31-Dec-18	Partner’s salary a/c		$ 2,400
	John’s current account			$ 800
	Ricky’s current account			$ 800
	Harry’s current account			$ 800

31-Dec-18	Profit and loss appropriation a/c		$ 2,400
	Partner’s salary a/c			$ 2,400

31-Dec-18	John’s current account		$ 1,000
	Ricky’s current account		$ 1,000
	Harry’s current account		$ 1,000
	Interest on drawings a/c			$ 3,000

31-Dec-18	Interest on drawings a/c		$ 3,000
	Profit and loss appropriation a/c			$ 3,000

31-Dec-18	Profit and loss a/c		$ 600
	Interest on loan			$ 600

31-Dec-18	Interest on loan		$ 600
	John’s current a/c			$ 600

31-Dec-18	Profit and loss appropriation a/c		2500
	John’s current account			833.33
	Ricky’s current account			833.33
	Harry’s current account			833.34

(Ross, Westerfield And Jaffe, 2007)

Profit and loss appropriation account:

Profit and loss appropriation account
For the year ended 31 Dec 2018
To interest on capital		By profit and loss a./c	9400
John	$ 2,500	By interest on drawings
Ricky	$ 2,500	John	$ 1,000
Harry	$ 2,500	Ricky	$ 1,000
To parner’s salary		Harry	$ 1,000
John	$ 800
Ricky	$ 800
Harry	$ 800
To profit’s transfer to:
John’s current account	$ 833.33
Ricky’s current account	$ 833.33
Harry’s current account	$ 833.34

	$ 12,400		$ 12,400

(Ross, Westerfield, kakani And Jaffe, 2008)

Working note:

Profit and loss a/c
Interest on loan		Net Profit	10000
John	600
Net profit transferred to P&L appropriation a/c	9400
	10000		10000

Partner’s current account

	John	Ricky	Harry		John	Ricky	Harry

Interest on drawings a/c	1000	1000	1000	Interest on capital a/c	2500	2500	2500
To balance c/d	3733.33	3133.33	3133.33	Partner’s salary	800	800	800
				Interest on loan	$ 600
				Profit and loss appropriation a/c	833.33	833.33	833.33

	4733.33	4133.33	4133.33		4733.33	4133.33	4133.33

(Moles, Parrino and Kidwekk, 2011)

Trial balance:

Trial Balance
	Debit	Credit
Cash	$ 123,200
Debtors	$ 27,200
Advanced wages	$ 1,800
Advanced electricity	$ 1,500
Advanced production cost	$ 1,000
Advanced advertisement	$ 1,000
Delivery van	$ 16,000
Kitchen equipment	$ 12,000
Land	$ 30,000
Building	$ 40,000
Stock	$ 2,000
Partner’s salary a/c	$ 2,400
Interest on capital	$ 7,500
Interest on Drawings		$ 3,000
Interest on loan	$ 600
Loan		$ 10,000
Accumulated depreciation		$ 5,800
Creditors		$ 84,400
Owner’s contribution
John’s current account		$ 4,733.33
Ricky’s current account		$ 4,133.33
Harry’s current account		$ 4,133.33
John’s capital account		$ 50,000
Ricky’s capital account		$ 50,000
Harry’s capital account		$ 50,000
	266200	266200

(Higgins, 2012)

Introduction of a new partner:

Cover story:

The business required new technology. And for cope up with the new technology, it has been decided by the partners to offer partnership to one of their common friend who would invest $ 50,000 in the company and will manage all the technological operations of the business. 25% of the profits would be shared with the partner named by Daniel. The partner would join the business on 1^st Jan 2019 (Hillier, Grinblatt and Titman, 2011).

Journal entry:

Journal Entries
Date	Particulars	LF	Debit	Credit

Jan-01	Bank a/c		50000
	Daniel’s Capital a/c			50000

(Gapenski, 2008)

Balance sheet:

Balance sheet
As on Jan 1, 2019
Liabilities and equity		Assets
John’s capital account	$ 50,000	Land	$ 30,000
Ricky’s capital account	$ 50,000	Building	$ 40,000
Harry’s capital account	$ 50,000	Delivery van	$ 16,000.00
Daniel’s capital account	$ 50,000	Kitchen equipment	$ 12,000.00
John’s current account	$ 4,733.33	Advanced wages	$ 1,800.00
Ricky’s current account	$ 4,133.33	Advanced electricity	$ 1,500.00
Harry’s current account	$ 4,133.33	Advanced production cost	$ 1,000.00
Creditors	$ 84,400	Advanced advertisement	$ 1,000.00
Accumulated depreciation	$ 5,800	Debtors	$ 27,200.00
Loan	10000	Stock	$ 2,000.00
		Cash	$ 180,700
	$ 313,200		$ 313,200

(Lee and Lee, 2006)

Part D: Budgets for your business:

Cash Budget:

Collections budget for the quarter to end 31 December
	%	August	September	Jan	Feb	Mar
Sales (net)				55,000	60,000	70,000
Sales plus GST
Credit sales				31,500	35,000	38,500

Collections
Same month				22,050	24,500	26,950
1 month					6,300	7,000
2 months						3,150
Total Receivable				22,050	30,800	37,100
Cash sales				23,500	25,000	31,500
Total collected				45,550	55,800	68,600
Cash Discount = 3%	2,400
Payments budget (includes GST where applicable)
				Jan	Feb	Mar
Purchases				44000	36,000	40,000
				43,120	35,280	39,200
Paid same month				32,340	26,460	29,400
Paid in 1 month					10,780	8,820
Total pmts to creditors				32,340	37,240	38,220
Discount received =				880	720	800

Cash payments budget for the months January to June
				Jan	Feb	Mar
Accounts Payable
Wages and Salaries				10,780	-1,960	980
Interest				500	500	500
Other Gen & Admin exp (inc GST)		800	800	800
GST (Sep Qtr)				12,080	-660	2,280
Total payments				44,420	36,580	40,500
Cash budget for the months January to June
				Jan	Feb	Mar
Opening cash bal				0	1,130	20,350
Add: Receipts				45,550	55,800	68,600
Less: Payments				44,420	36,580	40,500
Ending cash bal				1,130	20,350	48,450

(Lumby and Jones, 2007)

Budgeted income statement:

Budgeted Income Statement for the 3 months to end 31 March
			$	$
Sales				185,000
Less: Cost of Goods Sold
Opening Inventory	0
Add: Purchases	120,000
Less: Discount received		-2,400
Goods available for sale	117,600
Less: Ending Inventory	16,000	101,600
Gross profit			83,400
Less: Expenses
Wages and salaries			9,800
Interest				1,500
Depreciation			2,400
Other General and Admin			13,700
			27,400
Net profit				56,000

(Damodaran, 2011)

Budgeted balance statement:

Budgeted Balance Sheet as at 31 March
Current Assets
Cash at Bank			48,450
Short Term Investment		5,000
Accounts Receivable	10,535
Inventories		16,000
				79,985
Non-Current Assets
Investment in Gov Bond		8,000
Equipment		5,000
Accumulated depreciation	300	4,700
Motor Vehicle		3,500
Accumulated depreciation	300	3,200	15,900
Total Assets			95,885
Current Liabilities
Accounts Payable		9,800
GST Collected		0
GST Paid			0	9,800
Non-Current Liabilities
Long Term Loan			12,000
Total Liabilities		21,800
Net Assets		74,085
Owner’s Equity
Balance at start			18,085
RE at start				0
Add: Net Profit			56,000
Owner’s equity at end of period		74,085

References:

Damodaran, A, 2011, Applied corporate finance. 3^rd edition, John Wiley & sons, USA.

Gapenski, L.C., 2008. Healthcare finance: an introduction to accounting and financial management. Health Administration Press.

Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

Hillier, D., Grinblatt, M. and Titman, S., 2011. Financial markets and corporate strategy. McGraw Hill.

Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.

Kinsky, R. 2011. Charting Made Simple: A Beginner’s Guide to Technical Analysis. John Wiley & Sons.

Krantz, M. 2016. Fundamental Analysis for Dummies. London: John Wiley & Sons.

Kurth, S. 2013. Critical Review about Implications of the Efficient Market Hypothesis. GRIN Verlag.

Lee.C.F and Lee, A, C,.2006. Encyclopedia of finance. Springer science, new York.

Lumby,S and Jones,C,.2007, Corporate finance theory & practice, 7^th edition, Thomson, London.

Moles, P. Parrino, R and Kidwekk, D,.2011. Corporate finance. European edition, John Wiley &sons, United Kingdom.

Ross, A,. Westerfield, R,W,. Jaffe,J,.and Kakani,R,K,.2008. Corporate Finance. 8^th edition, Tata McGraw hill education private limited, New Delhi, India

Ross, S, A,. Westerfield, R, W,. And Jaffe, J,.2007. Corporate Finance. the McGraw-hill, India

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