ALLAM IQBAL OPEN UNIVERSITY, ISLAMABAD

Course: Principles of Accounting (8401)

ASSIGNMENT No. 2

(5) Issues in Partnership Accounting

Submitted by:
Mahnoor Gul
Reg # 0000398825
Level: BBA (4 Years)
Semester: Autumn, 2022
(Department of Business Administration)

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 Acknowledgements

I would like to thank my Class Teacher, __________for guiding me throughout the course of this
assignment. He was there to help me every step of the way, and his motivation is what helped me
complete this assignment successfully. I thank all the teachers who helped me by providing the
equipment that was necessary and vital, without which I would not have been able to work
effectively on this assignment.

I would also like to express my sincere gratitude to my friends and parents, who stood by me and
encouraged me to work on this assignment.

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 Abstract

Partnership accounting involves accounting for the financial activities of a business entity that is
owned and managed by two or more individuals. Here are some of the common issues in
partnership accounting:

The partnership agreement sets out the terms and conditions of the partnership, including the
distribution of profits and losses, the capital contributions of each partner, the management of the
partnership, and the admission and retirement of partners. It is important to ensure that the
partnership agreement is comprehensive and clear to avoid disputes among partners.

Beside issues in Agreement, Partnerships usually divide profits and losses according to a
predetermined ratio based on the capital contributions of each partner. However, partners may
agree to allocate profits and losses in a different way, which must be clearly documented in the
partnership agreement.

Some of the issues may arises in maintenance of partners’ capital accounts, each partner has a
separate capital account that reflects their capital contributions to the partnership, as well as their
share of profits and losses. It is important to ensure that the capital accounts are accurate and up-
to-date to avoid disputes among partners.

Some practical issues usually appear on admission or retirement of partners which have a
significant impact on the financial affairs of the partnership. It is important to ensure that the
partnership agreement sets out the terms and conditions for admission and retirement, including
the valuation of the partnership and the distribution of profits and losses.

Some of the taxation issues are also there in partnership accounts the profits and losses of the
partnership are allocated to the partners, who report them on their individual tax returns. It is
important to ensure that the partnership is properly structured to minimize the tax liability of the
partners.

Accounting issues may also come out during dissolution of the partnership, which may occur for
various reasons, such as the death or retirement of a partner, or the sale of the partnership. It is
important to ensure that the partnership agreement sets out the terms and conditions for dissolution,
including the distribution of assets and liabilities.

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 Table of Contents

Introduction the organization/ firm 1

Introduction to the issue 2

Practical study of the organization (with respect to the issue) 3

Data collection methods 4

SWOT analysis (strengths, weaknesses, opportunities & threats)

relevant to the issue assigned 5

Recommendations 6

References 7

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Introduction the organization/ firm
RAR MultiBiz Services Pvt Ltd

RAR MultiBiz Services Pvt Ltd Provide ICT services to national and international customers.
Multi-Biz services provide e-solutions for the future needs of YOUR Business. At Multi Biz
Services our dedicated team works in conjunction with our clients towards a common goal
business growth. We aim to become trusted and well-known brand.

Mission

Our mission is business growth of our customers with Unique Design and Development to deliver
market-defining high-quality solutions that create value and consistent competitive advantage for
our clients around the world. We provide time-effective solutions for their websites. Web Design
is committed to providing the greatest value possible while providing website packages which
cover all of your needs. AT Multi biz services our focus on security, uptime, accessible, user-
friendly custom reliability, design criteria and the willingness to work with our clients to overcome
their "business Risk" challenges are second to none. Multi Biz services give individual approach
to every client, flexible support and services system. we also have a good relationship on
international level work because we believe on its good communication with client bring up a good
relationship with your client and client is also a part of our Multi biz family for us.

SERVICE AREAS:

Web development

Web Designing

MIS solutions

SEO

APP development

E-Gov solutions

Civic Solutions

Manage Service
Introduction to the issue

Partnership accounting involves several issues that partners must consider to ensure the smooth
operation of their business. Some of the issues in partnership accounting include:

Capital contributions: Partnerships rely on capital contributions from each partner to start and
run the business. It's essential to determine how much each partner will contribute and in what
form, whether cash, assets, or services.

Profit sharing: Partnerships usually share profits according to the agreed-upon partnership
agreement. It's vital to decide how to distribute profits, whether based on a percentage of
ownership or contribution or some other criteria.

Partnership agreement: A partnership agreement is a legal document that outlines the terms and
conditions of the partnership. It's crucial to have a well-drafted partnership agreement that
addresses all possible scenarios, including the dissolution of the partnership.

Tax implications: Partnerships are typically taxed differently from other business entities.
Partnerships are subject to pass-through taxation, where the profits and losses of the partnership
are passed through to the partners' personal tax returns. Partnerships must consider the tax
implications of their business decisions.

Admission and withdrawal of partners: Partnerships may admit new partners or have partners
leave the business. It's important to have provisions in the partnership agreement that address
admission and withdrawal of partners, including how to value the partnership interest of the
departing partner.

Decision-making: Partnerships require consensus on critical business decisions. It's essential to

have a process in place for decision-making, including how to resolve disputes and conflicts.

Accounting and financial reporting: Partnerships must maintain accurate accounting records and
prepare financial statements. It's crucial to have a robust accounting system and procedures for
financial reporting.

Liability: Partnerships have unlimited liability, which means that partners are personally liable
for the debts and obligations of the partnership. Partnerships must manage their liabilities
carefully to avoid financial risks.

In conclusion, partnership accounting involves several issues that must be considered to ensure
the success of the business. Partnerships must have a well-drafted partnership agreement, a
robust accounting system, and procedures for financial reporting, and manage their liabilities
carefully.
Practical study of the organization (with respect to the issue)

RAR MultiBiz Services has partnership accounting issues which may face a number of challenges
related to its financial operations. Here is a practical study of RAR MultiBiz Services facing
partnership accounting issues:

Identification of the Partnership Accounting Issues: The first step is to identify the partnership
accounting issues that the RAR MultiBiz Services is facing. These issues may include inaccurate
recording of financial transactions, disagreements among partners on profit-sharing ratios, or
improper distribution of profits.

Review of the Partnership Agreement: Once the partnership accounting issues have been
identified, the firm should review the partnership agreement to ensure that it is being followed
properly. The agreement should clearly outline the roles and responsibilities of each partner, the
profit-sharing ratios, and the procedures for the distribution of profits.

Examination of Financial Records: RAR MultiBiz Services should examine its financial records,
including the books of accounts, to identify any errors or discrepancies. This may involve
reviewing bank statements, invoices, and other financial documents.

Correction of Accounting Errors: Once any errors or discrepancies have been identified, RAR
MultiBiz Services should take steps to correct them. This may involve adjusting entries in the
books of accounts, reconciling bank statements, or updating financial records.

Resolution of Disputes: If there are disagreements among partners on profit-sharing ratios or other
accounting issues, RAR MultiBiz Services should work to resolve them through mediation or
negotiation. If necessary, the organization may need to seek legal advice to resolve any disputes.

Implementation of Proper Accounting Procedures: To avoid future partnership accounting issues,

RAR MultiBiz Services should implement proper accounting procedures. This may involve hiring
a professional accountant to oversee the organization's financial operations or implementing a
software system to manage financial transactions.

In conclusion, RAR MultiBiz Services facing partnership accounting issues should take steps to
identify and resolve any issues in order to maintain accurate financial records and ensure that
profits are properly distributed among partners. By reviewing the partnership agreement,
examining financial records, correcting accounting errors, resolving disputes, and implementing
proper accounting procedures, the organization can improve its partnership accounting practices
and avoid future issues.
Data collection methods
A variety of data collection methods to study accounting issues of the firm. Here are some common
data collection methods used.

Interviews: We conduct interviews with stakeholders, such as partners, employees, and customers,
to gather information about accounting issues. These interviews can provide valuable insights into
the accounting practices of the firm, as well as any challenges or issues that need to be addressed.

Surveys: Surveys used to collect data from a large number of stakeholders. I use a survey to gather
information about the accounting practices of the firm, as well as the perceptions of stakeholders
about the effectiveness of these practices.

Financial Statements: Financial statements, such as the balance sheet, income statement, and cash
flow statement, provide a detailed overview of the financial performance of the organization. The
organization can use these statements to identify any accounting issues, such as discrepancies or
inaccuracies in financial reporting but we haven’t access to this documentation.

Accounting Records: We may review its accounting records, such as ledgers, journals, and bank
statements, to identify any accounting issues. These records can provide a detailed overview of the
financial transactions of the organization, and can help identify any discrepancies or errors in
accounting practices.

Data Analytics: Data analytics can be used to analyze financial data and identify patterns or trends
that may indicate accounting issues. This may involve using software to analyze large datasets,
such as transaction data or customer information, to identify any anomalies or irregularities in
financial reporting.

Expert Opinion: We seek the opinion of accounting experts or consultants to identify any
accounting issues and recommend solutions. These experts can provide valuable insights into
accounting best practices, as well as any legal or regulatory requirements that the firm may need
to comply with.

In conclusion, we can use a variety of data collection methods to study accounting issues. By
gathering information from a range of sources, including interviews, surveys, financial statements,
accounting records, data analytics, and expert opinion, the partnership firm can identify accounting
issues and develop effective solutions to address them.
SWOT analysis (strengths, weaknesses, opportunities & threats)
relevant to the issue assigned
Performing a SWOT analysis on the RAR MultiBiz Services can help identify strengths,
weaknesses, opportunities, and threats related to accounting issues. Here is an example of a SWOT
analysis for the firm studying accounting issues:

Strengths:

Experienced and knowledgeable accounting staff

Established accounting policies and procedures
Strong financial performance in recent years

Weaknesses:

Inaccurate financial reporting due to manual data entry

Limited budget for investment in accounting software and technology
Lack of communication and coordination between accounting and other departments

Opportunities:

Implementation of automated accounting systems to reduce errors and improve efficiency

Training and development programs for accounting staff to enhance skills and knowledge
Collaboration with external accounting experts for professional advice and guidance

Threats:

Increasing regulatory requirements and compliance issues

Increased competition in the market leading to pricing pressures
Economic downturn affecting overall financial performance

By conducting a SWOT analysis, we can identify key areas that need to be addressed to improve
accounting practices. For example, we can focus on investing in accounting software and
technology to reduce errors and improve efficiency, as well as providing training and development
programs for accounting staff to enhance their skills and knowledge.

The Firm can also collaborate with external accounting experts to ensure compliance with
regulatory requirements and obtain professional advice and guidance. Additionally, the form can
be proactive in monitoring economic conditions and competition in the market to develop
strategies to mitigate any potential threats.
Recommendations
Here are some recommendations for RAR MultiBiz Services regarding various accounting issues:

Accounting System: Implement a proper accounting system to ensure accurate recording and
reporting of financial transactions. This may include the use of accounting software, such as
QuickBooks ERP or Xero, to automate accounting processes.

Partnership Agreement: Ensure that the partnership agreement is properly drafted and includes
provisions related to profit sharing, capital contributions, and other financial matters. This will
help RAR MultiBiz Services avoid any misunderstandings or disputes related to accounting issues.

Record Keeping: Establish a system for maintaining accurate and complete financial records,
including ledgers, journals, and bank statements. This will help in timely preparation of financial
statements and identification of any accounting issues.

Regular Reconciliation: Reconcile bank statements and other financial records of the RAR
MultiBiz Services regularly to identify any discrepancies or errors in financial reporting. This will
help ensure the accuracy of financial statements and compliance with regulatory requirements.

Budgeting and Forecasting: Develop a budget and forecasting process to help the partnership plan
for future financial performance. This will help in making informed business decisions and identify
any potential financial issues.

Tax Compliance: Comply with tax laws and regulations, including filing of tax returns and
payment of taxes. Seek professional advice if necessary to ensure compliance with tax laws.

External Audit: Conduct an external audit of the financial statements periodically to ensure
compliance with accounting standards and regulatory requirements.

Training and Development: Provide regular training and development programs for accounting
staff to enhance their skills and knowledge. This will help ensure accurate financial reporting and
efficient accounting processes.

Communication and Coordination: Foster open communication and coordination among partners
and accounting staff to ensure that everyone is aware of financial matters and can work together
to resolve any accounting issues.

By implementing these recommendations, the partnership firm can ensure accurate financial
reporting, compliance with regulatory requirements, and efficient accounting processes. This will
help the partnership firm make informed business decisions and improve overall financial
performance.
References

https://www.kpitb.gov.pk/company/rar-multibiz-services-pvt-ltd

https://m.facebook.com/rarmultibizservices/photos/a.490251454431587/3445320895591280/
?type=3&_rdr

Mr. Abdul Haseeb, Web Development Expert

Managing Director
RAR MultiBiz Services Pvt Ltd

Mr. Ahsan Elahi, PHP Developer

Senior Team Leader
RAR MultiBiz Services Pvt Ltd