Clarification details
Updated December 2016. This document has been updated to address issues that have arisen from moderation.
Partnership accounting elements
The student needs to demonstrate their understanding of the following partnership elements, where relevant to the context:
- entries for the formation of a partnership using agreed values of assets, liabilities and capital contributions
- partnership agreement
- Partnership Act 1908
- entries for partners’ capital and current accounts
- profit distribution statement
- equity section and note to financial statements
Context
Students may be provided with resource material or may investigate a local partnership. The processing and narrative aspects need to be based on the same context. If an authentic partnership is investigated, the teacher needs to construct some processing transactions to enable students to complete formation entries, capital and current accounts, profit distribution and the equity section and equity note of the balance sheet.
Applying partnership elements
‘Could’ or ‘should’ statements do not provide evidence of understanding. All responses should be placed in the context of the specific partnership, and be based on what is actually occurring within the business.
The student must demonstrate how the partnership agreement clause(s) contribute to the ongoing viability of the entity. An holistic judgement should be applied to this; it is not necessary for every element of the partnership agreement to be linked to future operations.
At Achieved, in applying partnership elements the student will discuss the purpose of a clause in relation to the ongoing operations of the partnership, for example ‘Pete is rewarded for goodwill because his café has a steady customer base and these customers will probably continue to support the partnership’s new café’.
At Merit, an explanation of how or why an element contributes to the ongoing viability of the entity is required, for example ‘…this will bring future economic benefit to the new café because a steady customer base means a steady flow of café sales’.
Excellence requires students to refer to the consequence of having, or not having, the element, for example ‘As Pete and Manu have not had to start the café from scratch they can focus on serving existing customers and building up their client base to improve cash flow and profits for the business’.