2. PARTNERSHIP-FUNDAMENTALS
DEFINITION:
According to section 4 of the Indian Partnership Act 1932,
partnership is defined as ” the relationship between persons
who have agreed to share the profits of a business carried on
by all or any them acting for all”.
Persons making an agreement to carry business for
common purpose are called partners individually and firm
collectively.
PARTNERSHIP DEED:
The document or the instrument, containing the agreement
between partners, is known as partnership deed.
3. It contains the following clauses:
1.Name of the firm and nature of the business.
2.Names and addresses of the partners.
3.The duration, if any, of partnership firm.
4.The total capital of the firm and the share of
each partner.
5.The ratio of sharing profits and losses.
6.Whether capitals are to be fixed or fluctuating.
7.Whether any interest is to be allowed on
partner’s capitals.
8.Rate of interest on advances.
4. Contents Contd…
9.Whether any interest is to be allowed on
drawings.
10.The amount of salaries or some allowance, if
any, payable to the partners.
11.The amount which each partner can withdraw
for his private expenses.
12.The provision relating to keeping of proper
books of accounts.
13.The period after which the final accounts are to
be prepared.
5. Contents Contd…
14.The audit of the accounts.
15.Admission of new partners and expulsion of
the existing ones.
16.The method of ascertaining the share of
goodwill of a partner on his retirement or
death.
17.Whether decision in the case of Garner vs
Murray is to apply in the case of insolvency of
partner.
6. RULES APPLICABLE IN THE
ABSENCE OF PARTNERSHIP
DEED
In the absence of an agreement, the under
mentioned points should be need for proper
accounting amongst the partners.
1.Profit sharing ratio : Profit and losses are to be
shared equally amongst partners.
2.Interest on loan : On any loan (apart from
capital) advanced by a partner, he/she is entitled to
interest on the same at 6% per annum.
7. 3.Interest on capital : No interest is allowed on capitals.
4.Salary to partners : Partners are not entitled for any salary or
other remuneration.
5.Interest on Drawings : No interest is to be charged on drawings.
ACCOUNT S OF PARTNERSHIP FIRM:
The net profit as shown by profit & losses account is
transferred to another account called the Profit &loss
Appropriation account.
Interest on Capital
loss losses Appropriation Account.
INTEREST ON CAPITAL:
Interest on capital A/C Dr
To Partners’ capital or current A/C.
[For Interest credited to partners capital or (current A/C s)]
xxx
xxx
P&L Appropriation A/C Dr
To Interest on capital A/C
[For transferring interest on capital]
xxx
xxx
8. INTEREST ON DRAWINGS
Partners’ capital/current A/C Dr
To Interest on drawings A/C
xxx
xxx
Interest on drawings A/C Dr
To Profit &loss Appropriation/C
xxx
xxx
9. Partners salary or commission
Interest on partner’s Loan
Profit &loss Appropriation a/c Dr
To Partner’s salary or commission a/c
[For salary credited to capital or
current a/c]
xxx
xxx
Interest on partners A/C Dr
To Partners Loan A/C
xxx
xxx
10. Profit and loss Appropriation Account:
To P& LA/C (if there is loss)
To Interest on partners capital
To partners salary
To Partners commission
To interest on partners loan A/c
To Net Profit
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
xxxx
By P&LA/C
(Trading profit before
adjustments as per deed)
By Interest on drawings
By Net loss (partners
capital or current a/cs)
xxx
Xxx
Xxx
xxxx
11. Capital Accounts of Partners
Fluctuating Capital
PARTNERS CAPITAL A/C
To Drawings
,, Interest on Drawings
,, Balance c/d
-
-
xxx
xxxx
-
-
xxx
xxxx
-
-
xxx
xxxx
By balance b/d
,, Interest on capital
,,Commission
,, Share of profit
,, salary
-
-
-
xxx
xxx
xxxx
-
-
-
xxx
xxx
xxxx
-
-
-
xxx
xxx
xxxx
12. Fixed Capital Method
Capital a/c
Current a/c
To balance c/d xxx
xxxx
Xxx
xxx
Xxx
xxx
By balance b/d xxx
xxxx
Xxx
xxx
Xxx
xxx
To Drawings
To Interest on
drawings
To balance c/d
-
-
xxx
xxxx
-
-
xxx
xxxx
-
-
xxx
xxxx
By balance b/d
By interest on
drawings
By salary
By commission
By share of profit
xxx
-
-
-
-
xxxx
Xxx
-
-
-
-
xxxx
Xxx
-
-
-
-
xxxx
