Partnerships chapter

Partnerships chapter - 13 Horngren - Accounting CH13...

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Scott Jago, 34, is a partner at Allan Hall Partnership at Dee Why in Sydney. ‘When I left school in 1988, going to university and doing accounting wasn’t what I wanted to do,’ Jago says. ‘I would go surfing whenever I could.’ Then Jago hurt his back. ‘I basically had to resign myself to the fact that I could no longer continue what I was doing.’ After a two-year TAFE course, Jago worked as an accountant with Allan Hall Partnership. He completed a commerce degree part-time over the next four years, followed by further study. Jago says that one of the attractions of his firm is that it is on the northern beaches and has clients in the surfing industry. Jago’s clients include world-class surfers who may be earning more than $1 million a year. ‘We do the same type of work as a city firm, but we have a completely relaxed culture. No one wears ties, and many of us go for a surf in our lunch hour.’ Source: Adapted from Stan Beer, ‘Board at work’, The Sydney Morning Herald, 2 July 2005. C h a p t e r 13 Horngren - Accounting CH13 21/8/06 1:06 PM Page 498
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Learning objectives 1 Identify the characteristics of a partnership 2 Account for the partners’ investments in a partnership 3 Allocate profits and losses to the partners 4 Account for the admission of a new partner 5 Account for a partner’s withdrawal from the firm 6 Account for the liquidation of a partnership 7 Prepare partnership financial statements 13 Partnerships Partnerships are very fragile indeed. Unlike corporations, which continue regard- less of who owns the company, a partnership lives and dies with its owners: the partners. A case in point is Arthur Andersen, the once famous accounting firm. The previous edition of this book described Arthur Andersen as a profit-making machine, with each partner’s profit averaging well over half a million US dollars a year. Now the firm is dead. Arthur Andersen unravelled during 2002 and 2003. One of the world’s largest—and most respected—accounting firms went from international star to has-been in a matter of months. What could cause such a rapid fall from grace? The short answer is that the firm performed a few high-profile audits that proved to be flawed. Arthur Andersen’s auditors okayed the financial statements of several companies (including HIH Insurance in Australia) that had been over- stating their profits and their assets. The final blow came when the US government indicted Andersen on the charge that a partner in the firm destroyed legal evidence. Immediately, hundreds of Andersen’s clients began announcing that they were switching to other auditing firms. The partnership form of business organisation contributed to the swiftness of Andersen’s death. Why? Because a single partner can commit an entire firm to a legal liability. For this and other reasons, you should enter a business partnership very carefully.
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This note was uploaded on 08/22/2011 for the course FINC 2011 taught by Professor Craigmellare during the Three '10 term at University of Sydney.

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Partnerships chapter - 13 Horngren - Accounting CH13...

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