A partnership is an agreement between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The persons forming the partnership are called partners and collectively they are known as the firm. A partnership deed or agreement contains the necessary rules and regulations for running the partnership business. An active partner takes an active role in managing the business while a sleeping/dormant partner does not. A secret partner invests capital and participates actively but is not publicly known as a partner. A nominal/quasi partner does not invest capital or share profits or losses. A senior partner has a major investment and plays an active role compared to a junior partner with minor investment. A minor partner is under

1. PARTNAERSHIP
DEFINE PARTNERSHIP.
According to Partnership Act 1932: The relation between persons who have agreed to share
profit of a business carried on by all or any one of them acting for all.
DEFINE THE TERMS PARTNERS.
The persons who form the partnership are individually called “Partner” and collectively known
as “Firm”
EXPLAIN PARTNERSHIP DEED / PARTNERSHIP AGREEMENT.
A document, which contains all necessary rules and regulations required to run the partnership
business
DEFINE ACTIVE PARTNER.
Partner who takes active part in the management of the business is called active partner.
DEFINE SLEEPING PARTNER / DORMANT PARTNER / NON-ACTIVE PARTNER.
Partner who does not take active part in the management of the business is called sleeping
partner.
DEFINE SECRET PARTNER.
He invests his capital and take active part in the business activities but public does not know him
as partner of firm.
DEFINE NOMINAL PARTNER / QUASI PARTNER.
He neither invests capital nor shares the profit or loss of the firm. Firms only use the name and
good reputation of this partner.
DEFINE SENIOR PARTNER.
A person who has major investment and takes active part in the business is called senior partner.
DEFINE JUNIOR PARTNER.
A person who has minor investment in the business is called junior partner.
DEFINE MINOR PARTNER.
Partner whose age is less than 18 years is called minor partner.
DEFINE MAJOR PARTNER.
Partner whose age is 18 years or more is called major partner.
DEFINE RETIRED PARTNER.
A person who leaves the firm due to certain reason or event is known as retired partner.
DEFINE DECEASED PARTNER.
The partner whose life has expired is known as deceased partner.
PUNJAB COLLEGE OF COMMERCE PROF. HAFIZ MUHAMMAD NAWAZ PAGE 1

2. PARTNERSHIP
DEFINE GOODWILL.
Good name and reputation of the business is called goodwill.
WHAT IS THE FORMULA FOR THE CALCULATION OF GOODWILL IN AVERAGE
METHOD?
Goodwill = Average Profit × Number of Purchase Years
DEFINE SUPER PROFIT.
Super profit is the excess of actual profit over the normal profit of an enterprise.
EXPLAIN PROFIT OR LOSS APPROPRIATION ACCOUNT.
It is an account which is used for the division of profit among partners is called profit & loss
appropriation account.
WHAT IS MEANT BY FLUCTUATING CAPITAL IN PARTNERSHIP?
It means all adjustments with regard to the interest on capitals interest on drawings partners
salaries etc are passed through the capital accounts of partners
WHAT IS MEANT BY FIXED CAPITAL IN PARTNERSHIP?
It means all adjustments with regard to the interest on capitals interest on drawings partners
salaries etc are passed through current accounts of partner.
WHAT IS MEANT BY SACRIFICE RATIO?
It is the ratio which shows the sacrifice of the old partner at the time of admission of new partner.
Sacrifice Ratio = Old Ratio – New Ratio
WHAT IS MEANT BY GAINING RATIO?
It is the ratio which shows the gain of the remaining partner after the retirement or death of
existing partner.
Gaining Ratio = New Ratio – Old Ratio
WHAT IS THE REVALUATION ACCOUNT?
It is an account which shows the increase or decrease of assets or liabilities. It is normally
prepared at the time of admission, Retirement of a partner.
WHAT IS DISSOLUTION OF PARTNERSHIP?
Any change in the agreement among partners dissolves the partnership but does not the firm
DEFINE DISSOLUTION OF FIRM.
According to Partnership Act 1932:
The dissolution of partnership between all the partners of a firm is called dissolution of firm.
WHAT IS REALIZATION ACCOUNT?
It is an account which shows profit or loss on the dissolution of a firm.
PUNJAB COLLEGE OF COMMERCE PROF. HAFIZ MUHAMMAD NAWAZ PAGE 2

3. PARTNERSHIP
WHAT IS DISSOLUTION BY AGREEMENT?
Firm may be dissolved with the consent of all partners in accordance with the partnership
agreement.
DEFINE PARTNERSHIP AT WILL.
According to partnership act 1932:
When no provision is made in partnership agreement for the duration of partnership then the
partnership is called Partnership-At-Will.
DEFINE COMPULSORY DISSOLUTION OR DISSOLUTION BY THE OPERATION
OF LAW.
A firm is compulsory dissolved when the business become unlawful or all the partners become
insolvent.
EXPLAIN THE CIRCUMSTANCES ON WHICH THE FIRM MAY BE DISSOLVED BY
COURT.
Firm many be dissolved by court
 Unsound mind
 Incapability of partner.
 Misuse of power.
 Breach of partnership agreement.
 Transfer of share.
 Continuous loss.
EXPLAIN GARNER VS MURRAY RULE.
According to this rule the deficiency of the insolvent partner’s capital is to be borne by solvent
partners in the proportion of their capitals.
PUNJAB COLLEGE OF COMMERCE PROF. HAFIZ MUHAMMAD NAWAZ PAGE 3