CBSE Class 12 Accountancy Accounting for Partnership Firms. Learning the important concepts is very important for every student to get better marks in examinations. The concepts should be clear which will help in faster learning. The attached concepts made as per NCERT and CBSE pattern will help the student to understand the chapter and score better marks in the examinations..
Meaning and Definition
According to Section 4 of the 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”
Features of partnership Firm
1) Association of two or more persons: There must be at least two persons and maximum of 50 persons to form a partnership and they must be competent to contract.
2) Partnership Agreement or Deed: There must be an agreement among partners to form a partnership. It can be written or oral.
3) Legal Business: The business of the partnership firm must be a legally allowed business.
4) Sharing of Profits or Losses: The partners must share profits or losses in a certain ratio.
5) Mutual Agency: The partners mutually take part in daily routine work or the work may be carried on by one or more partners on behalf of the other partners. Every partner is legally liable for the acts of all other partners, whether he is taking part in the activities of the firm or not.
6) Unlimited Liability: Partners' liability to the third parties is unlimited. If there are losses, and the firm is not able to pay its debts fully, then all the partners shall be jointly and severally liable to pay the debts of the firm to an unlimited extent.
Partnership Deed: The document, which contains terms of the agreement, is called' Partnership Deed'. It generally contains the details about all the aspects affecting the relationship between the partners including the objective of business, contribution of capital by each partner, ratio in which the profits and the losses will be shared by the partners and entitlement of partners to interest on capital, interest on loan, etc
Provisions of Partnership Act, 1932 in the absence of Partnership Deed:
(a) Profit Sharing Ratio: If the partnership deed is silent about the profit sharing ratio, the profits and losses of the firm are to be shared equally by partners.
(b) Interest on Capital: No interest on capital is payable if the partnership deed is silent on the issue.
(c) Interest on Drawings: No interest is to be charged on the drawings made by the partners, if there is no mention in the Deed.
(d) Interest on Advances: If any partner has advanced some money to the firm beyond the amount of his capital for the purpose of business, he shall been titled to get an interest on the amount at the rate of 6 percent per annum.
(e) Remuneration for Firm's Work: No partner is entitled to get salary or other remuneration for taking part in the conduct of the business of the firm.
Fixed and Fluctuating Capital Accounts of Partners
There are two methods by which the capital accounts of partners can be maintained. These are:
(i) fixed capital method, and (ii) fluctuating capital method.
Fixed Capital Method: Under the fixed capital method, the capitals of the partners shall remain fixed unless additional capitalis introduced or a part of the capital is with drawn as per the agreement among the partners. All items likes hare of profit or loss, interest on capital, drawings,
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