Partnerships: Changes and Dissolution flashcards

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Goodwill

An intangible asset representing the value of a business's reputation and customer base, which provides a competitive advantage. In partnership changes, it's calculated to compensate existing partners.

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Revaluation Account

A temporary account used to record the increases and decreases in the value of assets and liabilities when a partnership's structure changes (e.g., admission, retirement). The resulting profit or loss is shared in the old PSR.

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Realisation Account

A temporary account used during the dissolution of a partnership to close the books. It records the sale of assets, settlement of liabilities, and determines the final profit or loss on dissolution.

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Memorandum Revaluation of Goodwill

The modern method for treating goodwill on a partnership change. Goodwill is credited to old partners (old PSR) and then debited to all partners (new PSR), leaving no goodwill balance in the final accounts.

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Partners' Capital Accounts

An account showing each partner's long-term investment in the partnership. It is adjusted for goodwill, revaluation, and capital introductions/withdrawals.

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Partners' Current Accounts

An account that tracks the day-to-day transactions between a partner and the partnership, such as drawings, interest on drawings, interest on capital, and share of profit/loss.

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Appropriation Account

An account prepared after the Statement of Profit or Loss to show how the net profit is distributed among partners. It includes adjustments for partners' salaries, interest on capital, interest on drawings, and the final profit share.

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Dissolution of Partnership

The complete termination and winding up of a partnership business. This involves selling all assets, paying off all liabilities, and distributing any remaining cash to the partners according to their final capital account balances.