Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
- CASE STUDY
Giangelo Corporation would like to venture in manufacturing a specialized tool that is required
by a semi-conductor company. In order to accomplish this, it is considering two options that
both require raising large amount of funds. First option (Project X) is the construction of a
factory building and acquisition of machineries for an estimated cost of P30 million. The other
alternative (Project Y) is the acquisition of an existing company that manufactures the same
tool at a price of P50 million.
In order to fund the project, the Company will have to apply for a loan from a bank and issue
shares of stocks. The management contemplated a more leveraged approach by availing the
70% of the financial requirements through loan borrowing and the rest from the issuance of
shares. The interest on bank loan is at 11% per annum while the issuance of shares will require
return to stockholders at 8% per annum. The applicable income tax rate is 25%.
Both of the projects will have estimated life of 10 years with no salvage value. The following
are the information on the related revenues and expenses of the two projects.
Project X
Project Y
Annual revenue
P 20,000,000
P30,000,000
Annual cash cost and expenses
excluding interest
P 12,700,000
P18,000,000
Required:
Determine the Weighted Average Cost of Capital (Round off to whole percentage
value)
Compute for:
Cash payback period
Accounting (Annual)
What is your recommendation to the management? Provide support.
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What is your recommendation to the management? Provide support.
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