B CRITICAL THINKING - DECISION MAKING ACROSS ORGANIZATION Kobe Bryant and Lebron James, two professionals in...

B CRITICAL THINKING - DECISION MAKING ACROSS ORGANIZATION Kobe Bryant and Lebron James, two professionals in the finance area, have worked for San Miguel Leasing for a number of years.San Miguel Leasing is a company that leases high-tech medical equipment to hospitals.Kobe and Lebron have decided that, with their financial expertise, they might start their own company to provide consulting services to individuals interested in leasing equipment. One form of organization they are considering is a Partnership, (organization). If they start a partnership, each individual plans to contribute P500,000 in cash.In addition, Kobe has used IBM computer that originally cost P30,700 which he intends to invest in the partnership. The computer has a present market value of P15,000. Although both Kobe and Lebron are financial wizards, they do not know how a partnership operates. As a result they have come to you for advice. Instructions:

1 What are the major disadvantages of starting a partnership?

2 What type of document is needed for a partnership, and what should this document contain?

3 Both Kobe and Lebron plan to work full-time in the new partnership.They believe that net income or net loss should be shared equally. However, they are wondering how they can provide compensation to Kobe for his additional investment of the computer.What would you tell/(advice) them?

4 Kobe is not sure how the computer equipment should be reported on his tax return. What would you tell him?

5 As indicated above, Kobe and Lebron have worked together for a number of years. Kobe's skills complement Lebron and vice versa. If one of them dies, it will be very difficult for the other to maintain the business not to mention the difficulty of paying the deceased partner's estate for his partnership interest.What would you advise them to do?

Expert Solution

Major disadvantages of starting a partnership include:

Unlimited liability for debts, all the partners of a partnership firm are jointly and severally liable for all the debts of a partnership firm. It means, in case a partner turns out to be bankrupt than in that case the other partner will be required to pay off all the liabilities of both the partners.
Each partner is liable by the actions of another partner along with the partnership firm
Management and control of operations related issues are also present there.
It's quite difficult and time intensive to calculate the value of assets and goodwill at the point of joining and the resignation of any partner from the partnership

Documents needed to register partnership firm

Most importantly, one document is needed which is a partnership deed between partners which rules out the mutual relation and profit sharing ratios and all other important components of a partnership
Address proof and Identity proof of the partners
Application to register the partnership to appropriate authority

Additional Compensation to Kobe for his additional Investment

The same shall be credited to Kobe's capital account and will become a property of the partnership firm at the market price.

The computer equipment shall be reported by Kobe as capital gain and the value of the consideration shall be market price i.e. P15,000 and shall be reduced by the WDV of the asset, calculated as per the law and tax shall be paid on the net amount of the two.

If one of the partner dies:

In case of any one of the partner dies, it will be extremely difficult for other to continue the business or pay the deceased partner's share in the partnership. In such cases, it will be advisable to dissolve the partnership and all its assets and distribute all the receipts in the profit sharing ratio after paying off all the liabilities.

ekkarill92 answered 1 year ago

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