(a) Explain the term fixed capital account. (b) State three conditions that would result in a change in the profit and loss sharing ratio of a partnership. ...

Answer Details

a) Fixed Capital Account refers to the capital that is invested in a business or partnership for the purpose of acquiring long-term assets such as machinery, equipment, buildings, and land. These assets are used to produce goods or provide services and are not meant to be sold in the normal course of business. The amount invested in these assets is recorded in the fixed capital account and is considered as part of the partners' equity in the business.

b) The profit and loss sharing ratio in a partnership can change due to the following conditions:

1) If the partners agree to change the ratio as specified in the partnership agreement.

2) If a new partner joins the partnership, the existing partners may decide to adjust the ratio to accommodate the new partner's contribution.

3) If a partner leaves the partnership, the remaining partners may decide to adjust the ratio to reflect the departure of the partner.

c) Goodwill in a partnership can arise from the following circumstances:

1) If the business has a strong reputation and a loyal customer base, this can lead to the creation of goodwill.

2) If the business has a unique location or a valuable intellectual property, this can also contribute to the creation of goodwill.

3) If the business has a highly skilled and experienced workforce, this can also result in the creation of goodwill.