CBSE Class 12 Accounting for Partnership Firms Fundamentals

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CBSE Class 12 Accounting for Partnership Firms Fundamentals. 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.

Accounting for Partnership Firms

Fundamentals

According to Section4 of the Indian Partnership Act, 1932 :

"Partnership is the relationship between persons who have agreed to the share the profits of a business carried on by all or any one of them acting for all"

Features of Partnership

1. There must be at least two persons to form a valid partnership. Section 11 of the Indian Partnership Act, 1932 restrict the (maximum) number of partners to 10 for carrying on banking business and 20 for other kind of business.

2. Partnership comes into existence by an agreement (either written or oral) among the partners. The written agreement among teh partners is called Partnership Deed.

3. A Partnership can formed for the purpose of carrying at sharing the profits or losses of the business

4. An agreement between the partners must be aimed at sharing the profits or losses of the business.

5. A partnership can be carried on by all or any one of them acting for all. PARTNERSHIP DEED

The partnership deed is a written agreement among the partners which contains the terms of agreement. A partnership deed should contain the following points:

1. Name and address of the firm.

2. Name and addresses of the partners.

3. Nature of the business

4. Terms of Partnership

5. Capital contribution by each partner.

6. Interest on capital

7. Drawings and interest on drawings.

8. Profit sharing ratio

9. Interest on loan.

10. Partner's Salary/commission etc.

11. Method for valuation of goodwill

6 Accountancy&XII

12. Accounting period of the firm

13. Rights and duties of partners.

Benefits of Partnership deed

(1) Helps to avoid dispute in future

(2) It is an evidence in the court 

(3) Facilitates functioning of business by avoiding misunderstanding

class_12-Account_concept_116

A Profit and Loss Appropriation Account is prepared to show the distribution of profits among partners as per the provision of Partnership Deed (or as per the provision of Indian Partnership Act, 1932 in the absesnce of Partnership Deed). It is an extension of Profit and Loss Acccount. It is nominal account.

The Journal Entries regarding Profit and Loss Appropriation Account are as follows:

1. For transfer of balance of Profit and Loss Account

Profit and Loss A/c Dr.

          To Profit and Loss Appropriation A/c

(Being net profit transferred to P & L Appropriation A/c)

2. For Interest on Capital

1. For allowing Interest on capital

Interest on Capital A/c

            To Partners' Capital/Current A/cs

(Being interest on capital allwoed @ ___ % p.a)

2. For transferring Interest on Capital to Profit and Loss Appropriation

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