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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