3.

1 Statement of Changes in Equity for Make Me a Hero Partnership for the year
ended 28 February 2023:

Particulars Teddy Sam Total

Capital Account - Opening Balance 420,000 900,000 1,320,000
Additional Capital Contribution by Teddy 380,000 - 380,000
Salary Adjustment (150,000 - 250,000) 100,000 (250,000) (150,000)
Profit Share (2:1 ratio) 674,400 336,800 1,011,200
Interest on Loan to Teddy 30,600 - 30,600
Interest on Capital 31,500 47,250 78,750
Drawings by Sam - (50,000) (50,000)
Interest on Sam's Drawings - (2,000) (2,000)
Capital Account - Closing Balance 1,636,500 1,982,050 3,618,550
Current Account - Opening Balance (425,320) (505,730) (931,050)
Adjustments for Recognition as Liability (425,320) (505,730) (931,050)
Total Equity 1,211,180 1,476,320 2,687,500

3.2 Partnership Recognition of Current Accounts as Liabilities: The partnership may

choose to recognize the current accounts of the partners as liabilities when they
exceed their capital contributions or when there is uncertainty regarding their
repayment. Recognizing the current accounts as liabilities may affect the statement
of changes in equity by reducing the equity balance, as these amounts are treated as
debts owed by the partners to the partnership.

3.3 Advantages and Disadvantages of Partnerships:

Advantages:

1. Shared Responsibility: Partnerships distribute responsibilities among partners,

allowing for shared decision-making and workload distribution.
2. Access to Capital and Resources: Partnerships can pool together resources, expertise,
and capital from multiple partners, making it easier to start and grow a business.
3. Tax Benefits: Partnerships often enjoy tax advantages, such as pass-through taxation,
where profits and losses are passed directly to the partners' personal tax returns.

Disadvantages:

1. Unlimited Liability: Partnerships expose partners to unlimited personal liability for

business debts and obligations, putting personal assets at risk.
2. Potential for Conflict: Disagreements among partners regarding business decisions,
profit sharing, or management can lead to conflicts and strains on the partnership.
3. Shared Profits: Partnerships require partners to share profits and decision-making,
which may lead to conflicts over control, direction, and resource allocation.