Accounting For Partnership Firms Fundamentals In Class 12 ts grewal || Free Notes

Partnership Meaning :- When two or more persons join hands to set up a business and share its profits and losses, they are said to be in partnership.

Essential Features Of Partnership Firm :-

1. 2 or More Persons
2. Mutual Agreement
3. Business Firm
4. Mutual Agency
5. Sharing of Profit Between Partners
6. Liability Of Each And Every Partners 

Partnership Deed 

Partnership appears because of arrangement among the Partners. The agreement among the partners can be either oral or written. The Partnership Act does not require that the agreement must be in writing or oral. But wherever it is in writing, the document, which contains rules of the agreement is called ‘Partnership Deed'. It generally contains 

Objective of business 

Contribution of capital by each partner

Ratio of profits and losses will be shared by the partners 

Interest on capital

Interest on loan, etc.

Provisions Of Partnership Act :

Important provisions affecting partnership accounts are:

(a) Profit Sharing Ratio Among The Partners: If the partnership deed is silent on the profit sharing ratio, then profits sharing ratio of the firm are to be shared equally in all the partners, irrespective of their capital contribution in the firm. 

(b) Interest on Capital (IOC): If the partnership deed is silent on the Interest on capital then No one can entitled to claim any interest on the amount of capital contributed by him (Partners) in the firm as a matter of right. However, interest on capital can be allowed only if it is expressly agreed to by the partners. In this condition we can say, no interest on capital is payable if the partnership deed is silent on the issue. 

(c) Interest on Drawings (IOD): No interest is to be charged on the drawings made by the partners, if Partnership Deed is silent. 

(d) Interest on Partner's Loan: If any partner has given advanced loan to the firm for the any purpose of business, he/she shall be entitled to get an interest on the loan amount at the rate of 6 % p.a. 

(e) Remuneration for the work of the firm: No partner is entitled to receive salary or other remuneration for participating in the business of the firm unless there is a some provision in the partnership deed.

Apart from the above, the Indian Partnership Act is subject to contract between partners:

(i) If a partner derives any profit for the firm from its own transactions or from the firm's use of property or business connections, it will account for the profits and make payments to the firm.

(ii)If a partner undertakes any business of similar nature and competes with that firm, he will account / pay all profits made by him in that business and pay to the firm.

Partnership Accounts What we have to make

1. Create of Partners’ Capital Accounts
2. Distribution of Profit & Loss among the partners 
3. Adjustments for Wrong Distribution of Profits in the Past Year
4. Reconstitution of the Partnership Firm and 
5. Dissolution of Partnership Firm.

Maintenance of Capital Accounts of Partners 

There are two ways by which partners can have capital accounts

Maintained. These are: 

(i) fixed capital law 

(ii) volatile capital

Whether there is a difference in the transaction Other than capital / withdrawals are recorded in capital accounts Partners.

(a) Fixed Capital Method: Under Fixed Capital Method, capitals of

Partners will remain fixed until additional capital is introduced

The share of capital is withdrawn as per the agreement between the partners. All items like profit or loss, interest on capital, drawing, interest On drawing, etc. are recorded in a separate account, called a partner. Current account. Partners' capital accounts will always show a credit Remaining, which will remain the same (fixed) year after year To add or withdraw capital. Current account of partners

On the other hand, debit or credit balance may show. Under this type

In this method, two accounts are kept for each partner i.e. capital.

Account and current account, while partners will have a capital account Always appear in favor of participation in the balance sheet,

If they are, then the current account balance will be shown in favor of liabilities. On credit balance and assets if they have a debit balance. Current account under partner's capital account and current capital The method will appear as shown below

(b) The fluctuating capital method: Under the fluctuating capital method, only For each account, one account, ie Capital Account is maintained. All Adjustments such as profit and loss, interest on capital, drawings Interest is recorded on drawing, salary or commission for partners, etc. Directly into partners' capital accounts. It balances Periodic fluctuations in the capital account. This is the reason Why this method is called the fluctuating capital method. in the absence of Any instructions, capital account should be prepared by this method. Proforma of capital accounts prepared under floating capital The method is given below:

Profit and loss investment account

Profit and loss appropriation account is an extension of profit and Loss account of the firm. It shows how the profits are appropriated or distributed Between partners. All adjustments in relation to partner's salary, partner Commissions are made through interest on capital, interest on drawing, etc. This account. It starts with net profit / net loss according to profit and loss account. Journal entries for preparation of profit and loss appropriation account And hereby making various adjustments is given as follows: