JKBOSE/CBSE Class 12th Commerce Notes | Accountancy | Download Here | jkboseclassnotes.blogspot.com


JKBOSE/CBSE Class 12th Commerce Notes | Accountancy | Download Here | jkboseclassnotes.blogspot.com 

Q1.  Define  Partnership?  Explain  the  nature  of  Partnership. 

Section  4  of  the  Indian  Partnership  Act,  1932,  defines  partnership  as  follows: 
“Partnership  is  the  relation  between  persons  who  are  agreed  to  share  the  profits  of  a  business  carried  on by  all  or  any  of  them  acting  for  all.”  

The  main  features  or  essential  elements  or  characteristics  of Partnership  are  as  under: 

(1)  Two  or  more  persons:  There  must  be  at  least  two  persons  to  form  a  partnership.  Partnership  Act  does not  specify  the  maximum  number  of  persons,  but  the  Indian  Companies  Act,  1956,  restricts  the  number  of partners  to  10  for  a  partnership  carrying  on  banking  business  and  20  in  case  of  other  kinds  of  business. 

(2)  Agreement:  Partnership  is  the  result  of  an  agreement.  There  must  be  an  agreement  to  form  a partnership.  The  agreement  forms  the  basis  of  mutual  rights  and  duties  of  partners. 

(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  and  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  together  to  run  some  charitable  activity,  it  will  not  be  called partnership. 

(5)  Relationship  of  Principal  and  Agent:  Each  partner  is  an  agent  as  well  as  the  partner  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  and  each  partner  is  bound  by  the  acts  of  other  partners  in  respect  to  the  business of  the  firm. Partnership  cannot  come  into  existence  in  the  absence  of  any  one  of  the  above  mentioned essential  features. 

Q2.  What  is  Partnership  Deed?  What  are  its  contents? 

Since  partnership  is  the  outcome  of  an  agreement,  it  is  essential  that  there  must  be  some  terms  and conditions  agreed  upon  by  all  the  partners.  Such  terms  and  conditions  may  be  either  oral  or  written.  The law  does  not  make  it  compulsory  to  have  a  written  agreement.  However,  in  order  to  avoid  all misunderstandings  and  disputes,  it  is  always  the  best  course  to  have  a  written  agreement  duly  signed  and registered  under  the  Act.  Such  a  written  document  which  contains  the  terms  of  agreement  is  called ‘Partnership  Deed’.  It  is  also  called  ‘Articles  of  Partnership’.  

The  partnership  deed  should  contain  the following  points: 
(1) The name and address of the firm. 
(2) Names and address of the partners. 
(3) The type and the nature of business the firm proposes to do. 
(4) Amount of capital to be contributed by each partner whether the capital accounts will be fixed or fluctuating. 
(5) Interest on capitals 
(6) Drawings. 
(7) Interest on drawings. 
(8) Profit sharing ratio 
(9) Salary and 
(10) Goodwill etc. 

Q3. What are the rules which are applicable in the absence of Partnership Deed? 

In the absence of a Partnership Deed or Verbal agreement, or if the Partnership Deed is silent on a certain point, the following provisions of Partnership Act, 1932 will be applicable: 

(1) Profit-sharing Ratio: Profit and losses are to be shared equally, irrespective of their capital contribution. 

(2) Interest on capital: No interest on capitals shall be allowed to the partners. If there is a provision for the interest on capitals in the partnership deed, it will be allowed only when there is a profit. 

(3) Interest on Drawings: No interest is to be charged on drawings. 

(4) Salary to a Partner: No partner is entitled to any salary or commission for taking part in running the firm’s business. 

(5) Interest on Loan: Interest at the rate of 6% per annum is to be allowed on a partner’s loan to the firm. Such interest shall be paid even if there are losses to the firm. 

(6) Every partner is a joint owner of the partnership property and is entitled to an equal share in the property. 

Q4. What is Fixed and Fluctuating Capital Accounts? 

In case of partnership there is a separate Capital Account for each partner. The capital contributed by each partner will be credited to his capital account. The capital accounts of partners may be maintained in any one of the following methods: 

(1) Fixed Capital Accounts: Under this system the original capitals invested by the partners remain constant, unless additional capital is introduced by an agreement. In other words, capitals of the partners are not allowed to change during the life-time of business except in extraordinary circumstances. When fixed capital method is adopted, all entries relating to drawings, interest on capitals, interest on drawings, salary to partner, share of profit or loss etc., are made in a newly opened account for each partner. This account is called Current Account or Drawings Account. 

(2) Fluctuating Capital Accounts: When the capitals need not be fixed, the balances of capital accounts go on changing from time to time. The reason is that no separate Current Accounts are maintained, but all the entries relating to drawings, interest on capitals, interest on drawings, salary to partner, share of profit or loss etc., are recorded in the capital accounts itself. In the absence of any instruction, the Capital Accounts should be prepared by this method. 
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