Here is the explanation of chapter fundamentals of partnership chapter 1. Full chapter in less efforts. In this ppt you will get all the headings and points of chapter.

1. ACCOUNTANCY CHAPTER 1
ACCOUNTING FOR PARTNERSHIP FIRM,
FUNDAMENTALS

2.  ACCOUNTING FOR PARTNERSHIPS FIRM
 INTRODUCTION ABOUT TOPIC
 1. Nature of partnership firms .
 2. feature or Characteristics of partnership .
 3. i. Rights of partner
 3. ii. Limited Liability Partnership (LLP)
 4. Partnership Deed. Articles of Partnership.
 5. Rules of Applicable in the Absence of Partnership deed.
 6. Format of Profit and loss Appropriation accounts .
 7. Calculation of Interest on Capital .
 8. Calculation of Internet on Drawing.
 9. Capital Accounts of Partners i. Fixed Capital Account . ii. Fluctuating Capital Account.

3.  10. Manager's Commission on Net Profits. i . On profit before changing
such Commission ii . On profit after changing such Commission
 11. 1. Interest on Partners loan to the firm.
 2. Interest on partner’s loan from the firm.
 12. Rent haid to a Partner .
 13. When Appropeciation are more than profit.
 14. Adjustments In the closing Accounts.
 15. Rectification of Interest on capitalless Charged or Cancellation of
excessive interest.
 16. In the absence of Partnerships Deed.
 17. Guarantee of profit to a Partner.

4. INTRODUCTION
 There are certain limitations of a sole trader. In a sole trading
concern only one man invests capital, undertakes the risk
involved in the business and controls the whole affairs of the
business.
 Therefore, some persons may combine and enter into an
agreement to form a partnership. Partnership is a relation of
mutual trust and faith. Partnership accounts should present a
true and fair picture of the partnership business.

5. 1. Nature of Partnership Firm
 a partnership firm is not a separate legal entity. In other
words, it has no existence separate from its partners.
 It means that in case of bankruptcy of the partnership
firm, private estates of the partners would be liable to
meet the firm's debts.

6. Definition of Partnership
 Section 4 of the Indian partnership act, 1932
 Partnership is the relation between persons
who have agreed to share the profits of a
business carried on by all or any of them acting
for all."

7. 2. Main Features or Essential Elements or Characteristics
of Partnership
1. Two or more persons :- There must be atleast two persons to form a
partnership.
 Partnership Act does not specify the maximum number of persons.
 Section 464 of Indian Companies Act, 2013, restricts the number of
partners to 50.
2. Agreement :- Partnership is the result of an agreement. It must come
into existence by an agreement and not by the operation of law.
 Hindu undivided family comes into existence by the operation of law
and not by an agreement.
 Such an agreement can be either oral or in writing.

8. 3. Existence of Business and Profit Motive :- Partnership can be
formed for the purpose of carrying on some business with the
intention of earning profits .
 such business must be legal.
 A joint ownership of some property by itself cannot be called a
partnership
4. Sharing of Profits :- The agreement between the partners must be
aimed at sharing the profits of the business.
 If some persons join hands to run some charitable activity, it will
not be called partnership.

9. 5. Relationship of Principal and Agent : Each partner is an agent as
well as a principal of the firm.
 An agent, because he can bind the other partners by his acts and
a principal, because he himself can be bound by the acts of the
other partners.
6. Business carried on by all or any of them acting for all :-- It
means that each partner can participate in the conduct of business.
 each partner is bound by the acts of other partners in respect to
the business of the firm.
7. No Separate Existence :- A partnership firm has no separate
existence from its members.
 It means that all agreements entered with the firm will be
enforceable against each partner separately and jointly.

10. 3. i. Rights of a Partner
1. Every partner has the right to share profits or losses with other
partners in the agreed ratio.
2. Every partner has the right to take part in the conduct of the
business.
3. Every partner has the right to be consulted in the matters related
to partnership business.
4. Every partner has the right to inspect and have a copy of the
books of accounts.
5. Every partner has a right to disallow the admission of a new
partner.
6. Every partner is the joint owner of the partnership property.

11.  1. Law :- Applicable Indian Partnership
Act, 1932.
 2. Registration :- Optional
 3. Creation:- Created by an Agreement
 4. Separate Legal Entity :- It is not a
separate legal entity.
 5. Number of Partner :-Minimum 2 and
Maximum 50.
 6. Ownership of assets :- Firm cannot
own any asset.The partners own the
assets of the firm.
 7. Liability Unlimited
 Limited Liability PartnershipAct,
2008
 Compulsory with Registrar of
Companies
 Created by Law
 It is a separate legal entity.
 Minimum 2 but no maximum limit.
 The LLP as an independent entity
can own assets.
 Limited to the extent of their
contribution towards LLP
Distinction between Partnership
Firm and LLP
PARTNERSHIP LLPs

12. 4. Meaning of PARTNERSHIP DEED
 As stated above a partnership is formed by an
agreement.
 This agreement can be oral or written.
 Though the law does not expressly require that
there should be an agreement in writing but the
absence of written agreement may be the
source of problem in managing the affairs of
the partnership firm

13. Contents of Partnership deed
 • 1. Name and address of the firm.
 • 2. Name and addresses of all the partners.
 • 3. Nature and place of the business.
 • 4. Duration of partnership.
 • 5. Date of commencement of partnership.
 • 6. Amount of capital contributed by each partners.
 • 7. Ratio in which profits and losses are to be shared.

14.  8. Interest on partner's capital and drawings.
 9. Interest on loan by the partner to the firm.
 10. Salary, Commission, etc. if any payable to a partner.
 11. Method of computation and treatment of Goodwill on the
reconstitution of the firm.
 12. Mode of settlement of accounts in case of retirement/death
of a partner.
 13. Mode of settlement of accounts in case of dissolution of
the firm.
 14. Accounting period of the firm.
 15. Bank accounts operate by firm’s name or by Partner.
 16. Settlement of disputes.
 17. Method of recording of firm‘s accounts.

15. 5 . Rules in the absence of the
Partnership Deed
 Profit sharing ratio:- The partners will share the profits and losses in the
equal ratio.
 Interest on loan:- Interest on loan will be given @ 6% p.a. to the partners.
 Interest on Capital:- No interest is allowed to partners on the capital
invested by them.
 Interest on Drawing:- No interest is to be charged on Drawing.
 Salary to a Partner:- No Partner is entitled to any salary or Commission.
 Admission of new Partner:- without agreed by all Partner no new Partner
admitted.

16. Meaning of Profit and Loss Appropriation
Account:
 Profit and Loss Appropriation Account is an extension of Profit
and Loss Account that is prepared to distribute the net profit
among the partners.
 All adjustments relating to partners like interest on capital,
interest on drawings, commission to partners etc. are made in
this Account

17.  10. Manager's Commission on Net Profits.
i . On profit before changing such Commission.
ii . On profit after changing such Commission
 11. Interest on Partners loan to the firm.
 12. Reserve account.
 13. Rent haid to a Partner .
ALL POINTS IN FORMATS OF P/L APPROPRIATION

18. Dr. Cr.
Particular amount Particular amount
To partner 's salary
*******
By Profit & loss a/c
Balancing figure ******
To partners commission (on net profit ) ******* Less :- Interest on Loan ***
To reserve a/c ******* Less:- Rent received by Partner **
To Interest on capital ******* Less:- Manager‘s commission *** ****
To Provisions for donation *******
By Interest on drawing
To profit transfer to: *******
X's capital Account *******
Y's capital Accoun *******
6. PROFIT & LOSS APPROPRIATION
ACCOUNT for the year ended 31st
March, 2021

19. Enter for Interest on Capital
1 on allowing interest on Capital
a Interest on Capital A/c Dr.
To Partner's Capital A/c
(Interest on Capital at .....% p.a)
b on closer of interest on Capital A/c
Profit & Loss Appropriation A/c Dr.
To interest on Capital A/c
2 Entry for interest on Drawing
on allowing interest on Drawing
a Partner's Capital A/c Dr.
To Interest on Drawing A/c
(Interest on Capital at .....% p.a)
b on closer of interest on Drawing A/c
JOURNAL ENTRIES FOR P/L APP. ACCOUNT

20. 3 EntRY for salary and Commission payable
a on allowing salary or Commission to Partner
Partner's Salary or Commission A/c Dr.
To Partner's Capital A/c
b on closer of salary or Commission A/c
Profit and Loss Appropriation A/c Dr.
To Partner's Salary /Commission A/c
4 Entry for transfer a part of profit to Reserve
Profit and Loss Appropriation A/c Dr.
To Reserve A/c
5 Entry for transfer of credit balance of P/L App.
Profit and Loss Appropriation A/c Dr.
To Partner's Capital or current A/c

21. profit and loss appropriation A/c
 In case of net Loss
 1. If Partners will get any Rent for his property.
 P/L AIC :- To Rent of Partner (Dr)
 2. If partner grant Loan to the firm (interest on loan) 6% given.
 P/ L A/c :- To Interest on Loan (Dr.)
 Note :- Rent and interest on loan are charged against profit. It will be
allowed even in case of Loss.
 In case of (Net profit)
 i. Rent Received by partner
 P/L A/c :- To Rent of partner
 ii. Interest on Loan Received by partner
 P/L A/L :- To Interest on Loan.
 Note, when interest on capital , salary of Partner is more than given profit
then profit will be adjusted in the Ratio of Interest on loan and Salary.

22. Loan given TO THE FIRM by partner
PROFIT/LOSS ACCOUNT
PARTICULAR Dr. AMOUNT PARTICULAR AMOUNT
To Interest on partner’s loan a/c
PARTICULAR Dr. AMOUNT PARTICULAR AMOUNT
To Balance C/d
By Bank A/C
BY Interest on Loan A/C
Partner’s Loan A/C

23. Loan taken by partner FROM THE FIRM
Profit and Loss A/c
PARTICULAR Dr. AMOUNT PARTICULAR. Cr. AMOUNT
By Interest on partner’s loan a/c
PARTICULAR Dr. AMOUNT PARTICULAR AMOUNT
To Interest on partner’s Loan A/C
Partner’s capital A/c

24. 7. Provision relating to Interest on Capital
Case Provision
case 1. when Agreement is silent No interest is allowed
about Interest on Capital
case 2. Interest on Capital is silent in
Interest will be allowed when there is a
profit
treating interest as charge a. In case of Loss No interest will be allowed
b. Profit is equal to or full interest will be allowed
more than the amount of interest
c. profit is less than the interest itself Interest will be restricted
to the amount of profit .
Hence, profit will be distributed
in the ratio of interest on Capital.
case 3. Interest is treated as charge
Full interest will be allowed whether
there is profit or Loss

25. 8. METHODS OF CALCULATING INTEREST ON DRAWING :
simple methods
Interest on drawing =Amount *rate /100* m/12
Product method
Interest on drawing =Total of product *rate /100 *1/12
INTEREST ON MONTHLY DRAWING FOR ONE YEAR
case 1. Beginning of each month = 6.5/12 (amount ×12)
case 2. End of each month = 5.5/12
case 3. Middle of each month = 6/12
case 4. Beginning of each quarter = 7.5/12 (amount ×4)
case 5. End of each quarter = 4.5 /12
case 6. Middle of each quarter = 6/12
INTEREST ON MONTHLY DRAWING FOR 6 MONTH (amount ×6)
case 1. Beginning of each month = 3.5/12
case 2. End of each month = 2.5 /12
case 3. Middle of each month = 3/12
INTEREST ON MONTHLY DRAWING FOR 9 MONTHS (amount ×9)

26. 9. CAPITAL ACCOUNTS OF PARTNERS
 In case of partnership there is a separate
capital account for each partner.
 The capital contributed by each partner will be
conducted to his capital account.
 Capital account of partners may be maintained
in any one of the following two method.
 1. FIXED CAPITAL ACCOUNTS
 2. FLUCTUATING CAPITAL ACCOUNTS

27.  Capital of partners are not allowed to change
during the lifetime of business except in
extraordinary circumstances .
 when fixed capital method is adopted, all
entries related to drawing, interest on capital,
interest on drawing, salary to partner, share of
profit or loss etc., are made in newly opened
account for each partner called current account
or drawing account .
Fixed Capital Accounts

28. PARTICULAR PARTICULAR
To Bank a/c (Drawing against
capital )
By Balance b/d (opening
balance)
To Balance c/d (closing Balance) By Bank (additionally capital)
Fixed Capital Accounts
CAPITAL ACCOUNT

29. Fixed Capital Accounts
CURRENT ACCOUNT
Dr. Cr.
Particular X Y Z Particular X Y Z
To Drawings a/c (drawing against profit)
By Balance b/d ( opening
Balance)
To Interest on drawing By interest on capital
To P & L a/c (share of loss ) By partner's salary
To Interest on partner loan (loan taken from
firm)
By partner's commission
To Balance c/d ( closing Balance ) By P&L appropriation a/c

30.  When the capital need not be fixed, the balance
of capital account go on changing from time to
time.
 The reason is that no separate current account
are maintained but all the entries related to
drawings, interest on capital, interest on
drawing ,salary to partner, share of profit or
loss etc., are recorded in capital account itself.
FLUCTUATING CAPITAL ACCOUNT

31. FLUCTUATING CAPITAL ACCOUNT
PARTNERS CAPITAL A/C
Dr. Cr.
Particular X Y Z Particular X Y Z
To Bank a/c (Drawing against capital )
By Balance c/d ( opening
Balance)
To Drawings a/c (drawing against profit)
By Bank (additionally
capital)
To Interest on drawing By interest on capital
To P & L a/c (share of loss ) By partner's salary
To Interest on partner loan (loan taken
from firm)
By partner's commission
To Balance c/d ( closing Balance ) By P&L appropriation a/c

32. Question 1
Partner A Partner B
1 A and B commenced business with capital respectively. rs 6,00,000 rs 2,00,000
2 the profit during the year . rs 2,40,000
3 Interest on capital is to be allowed on capital . 6 % p.m 6 % p.m
4 partner are allowed to Salary of rupees . rs 700/Month rs 60,000 p.a
5 the drawing of the partner . rs 60,000 rs 40,000
6 the Interest on drawing rs 2,000
rs 1,000 or 5%
p.a
7 Partnership sharing profit and loss in the ratio of 2 : 1
8
Partner's Commission 8% of net profit before charging any commission
(profit * 8/100) (see question 9)
9
Partner's commission of 8% of net profit after charging any commission
(profit * 8/108)
10 manager is entitled to a commission of 10% of the profit
11 Interest on partner's loan a/c of rs 80,000 for the whole year .
12 1/10th of the distributable profit transferred to General Reserve.
13
partner is entitled to a Rent of rs 20,000 per month for the use of his
premises by the firm.
6 or 14
Interest on drawing (drawing for beginning,middle,end of each month or
quarter and for 6 months or 9 months .
3 or 15 Interest on Capital in the absence of partnership Deed. (follow the rules )
16 prepare the Profit and Loss appropriation account and
17 partners capital account as at 31st March 2021

33. Dr. Cr.
Particular amount Particular amount
To partner 's salary By Profit & loss a/c (net profit)
Less:- Rent 13
To partners commission (on net
profit ) 8,9
Less:- Interest on partner's loan
11
To General reserve a/c 12 Less :- Manager's Commission 10
To Interest on capital 3 or 15 (10% of Net profit)
A's Capital A/c
B's Capital A/c
To Provisions for donation
To profit transfer to: By Interest on drawing (6 or 14)
A's capital Account Partner's Capital A/c
B's capital Accoun Partner's Capital A/c
PROFIT & LOSS APPROPRIATION ACCOUNT
for the year ended 31st March, 2017

34. PRATNERS CAPITAL ACCOUNT
Dr. Cr.
Particular A B Particular A B
To Bank a/c
(Drawing against capital )
By Balance c/d
(opening Balance)
To Drawings a/c
(drawing against profit)
By Bank
(additionally capital)
To Interest on drawing By interest on capital
To P & L a/c (share of loss ) By partner's salary
To Balance c/d ( closing Balance ) By partner's commission
By P&L appropriation a/c

35. 11. PARTNER'S LOAN ACCOUNT
(Loan given TO THE firm)
Dr. Cr.
PARTICULAR AMOUNT PARTICULAR AMOUNT
To Balance c/d BY Bank A/c
BY Interest on Loan A/c
(Loan amount * 6% * month/12)

36. 14. Adjustments in the closed accounts
 Sometimes, after the accounts of the partnership firm have been
closed after the financial year,
 it is discovered that there have been some errors or omissions in
theaccounts.
 In such cases, Usually the following types of adjustments are
made :
 (1) When Interest on Capitals, Drawings,salary, Commission may
have been omitted.
 (2) When Profits and Losses have been distributed among the
partners in a wrong proportion.
 (3) when profit sharing ratio has been altered with effect from
Some past date.

37. A B C TOTAL
Interest on Capital cr.
salary of partner cr.
Commission to partner cr.
less: Interest on drawing dr.
less: Division of firm's Loss
in sharing ratio
TABLE SHOWING ADJUSTMENT