Reference no: EM133153234

Question - Purchases of supplies are done by Lala, based on purchase requests submitted by the managers. Payments are approved by Koko and payment cheques are signed by Mimi. The financial accounting function of the business is contracted to a small company secretarial services firm. The firm submits the business accounting records to the owners on a monthly basis. Recently Lala noticed that Mimi has made several payments that she strongly believes are for personal use. The payments were debited to the general administrative account. The total amounts of these payments are substantive. Lala is in a dilemma. Mimi holds the biggest share and she is a very sensitive, temperamental person. Previously she has threatened to pull back her capital when she was dissatisfied with a business arrangement. If Mimi decides to withdraw from the partnership, Lala is sure that will be the end of Chomella Beauty Parlour. Lala has strong concerns about the continuation of their partnership.

Required -

(a) What is the appropriate accounting treatment for the payments under Lala's concern? What are the implications of the mistreatment? Describe.

(b) What should Lala can settle about the payments? What about her concern related to the continuation of the partnership? Elaborate.