ACCOUNTING FOR PARTNERSHIP: BASIC CONCEPTS H.S. 2nd Year ACCOUNTANCY AHSEC ASSAM Higher Secondary NOTES PART-A UNIT -2




ACCOUNTANCY
A
UNIT -2

ACCOUNTING FOR PARTNERSHIP: BASIC CONCEPTS


1. Define Partnership?
Ans: According to Section 4 of the Indian Partnership Act 1932, defines a partnership as, “The relation between persons who have agreed to share the profit of the business carried on by all or any of them acting for all”.

2. What are the features of partnership?
Ans: Following are features of partnership:
(a) Agreement: It is necessary that there must be an agreement between partners. The agreement may be in written or oral.
(b) Lawful Business:  Partnership is formed for doing any lawful business to earn profits.
(c) Minimum and Maximum Numbers of partners:  Minimum numbers of members in a partnership firm is two and maximum number is twenty, in case of banking firm maximum numbers of partners are ten.
(d) Sharing a profit:  Partners must have agreed to share profits of the firm according to pre-determined ratio.
(e) Business can be Carried on by all or any of the Partners Acting for all: Partnership business can be carried on by all the partners or by any one of the partner on behalf of other partners.

3. What is Partnership Deed?
Ans: Partnership comes into existence on account of an agreement. This agreement may be in writing or oral. This written document containing the various terms and conditions among the partners is known as partnership deed.  
According to Kohler, “Partnership deed is an instrument drafted and signed by partners for defining the various rules and regulations of the firm”.

4. What are the clauses/contents of the partnership deed?
Ans: Followings are the clauses/contents of partnership deed:
(a) Name of the firm: The name of the firm must not be identical to the name of existing firm.
(b) Place of business: The address of the firm where business is to be carried out must be given.
(c) Nature of business: Partners must decide what type business they would do collectively.
(d) Duration of partnership:  The period of partnership must be decided.
(e) Contribution of capital: How much capital will be contributed by each partner must be decided.
(f) Profit sharing ratio: The partners must decide their mutual profit sharing ratio.

5. What are the rules applicable in the absence of any partnership deed?
Ans: Following are the rules applicable in the absence of any partnership deed:
(a) The partners shall share the profits and losses of the firm equally irrespective of their capital contribution.
(b) No interest will be charged on drawings made by the partners.
(c) No interest is allowed to partners on the capital contributed by them.
(d) Interest on partner’s loan should be charged @ 6% p.a.
(e) No partners is entitled to any salary or commission for participating in the business of the firm.

6. What are the writes of a partner?
Ans: Following are the rights of a partner:
a. Every partner has a right to take part in the management of the business.
b. Every partner has a right to be consulted in all matters affecting the business of partnership.
c. Every partner has a right to access to and to inspect any books of the firm.
d. Every partner has a right not to allow the admission of a new partner.

7. What are the duties of a partner?
Ans: Following are the duties of a partner:
a.  A partner is bound to attain his duties in the conduct of the business.
b.  A partner is not entitled to receive any salary or commission for taking part in the conduct of the business.
c.  A partner shall indemnify the loss caused by fraud  in the conduct of the business of the firm.
d.  No partner can assign or transfer the interest of the firm to any other persons.

8. What is Profit & Loss Appropriation Account?
Ans: Profit & Loss Appropriation Account is prepared to show the distribution of profits among the partners after making all appropriations. Profit & Loss Appropriation Account is a part of Final Account, after preparing Profit &Loss Account; Profit & Loss Appropriation Account is prepared.  It is a nominal account. The balancing figure of this account is distributed among the partners in their pre-determined profit sharing ratio.

9. What are the features of Profit and Loss Appropriation account?
Ans: Following are the features of Profit & Loss Appropriation Account:
a. It is prepaid after the preparation of profit and loss account.
b. It is prepared by partnership firm for appropriation of profits among partners.
c. It is prepared in terms of the partnership deed.

10. What is the differences between P/L  Account and P/L Appropriation Account?
Ans: Following are the differences between P/L Account and P/L Appropriation Account:


11. What is capital account?
Ans: Capital account: Capital account is a personal account of the owner. Capital account is prepared to record the amount of capital contributed by each partner. The capital of a partner may be either fixed or fluctuating. It should be mentioned in the partnership deed. It records all the transactions relating to partners e.g. salary, fees, bonus, commission, interest on capital, share of profits, goodwill, reserves, drawings, interest on drawings etc.

12. What is Current Account?
Ans: Where there is an agreement among the partners that the capital of the partners will be fixed an account called Current Account in the name of each partner is opened in the books of the firm. All entries relating to salary, fees, bonus, commission, interest on capital, share of profits, goodwill, reserves, drawings, interest on drawings etc., are passed through current account.

13. What are the difference between Fixed capital and Fluctuating capital?
Ans: Following are the differences between Fixed capital and Fluctuating capital:


14. What are the difference between Capital Account and Current Account?
Ans: Following are the difference between Capital Account and Current Account:


15. Give two circumstances when fixed capital of partners may change?
Ans: Following are the circumstances when fixed capital of partners may change:
(i) When an additional capital is introduced by the partners.
(ii) When a part of the capital is permanently withdrawn by the partners.

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