Accounting for Partnership Firms-Fundamentals

Question 1

Define Partnership

Answer 1

According to Indian Partnership Act, 1932, Section 4
“Partnership is the relation between two persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”

Question 2

Features of Partnership

Answer 2

1. Two or more persons (minimum 2 & maximum 50)
2. Agreement
3. Existence of Business and Profit motive
4. Sharing of Profits
5. Relationship of Principles and Agents
6. Business Carried on by all or any of them acting for all
7. No separate existence

Question 3

Rights of Partner

Answer 3

1. Right to share Profits and Losses with other partners in the agreed ratio
2. Right to take part in the conduct of business
3. Right to be consulted in matters related to partnership business.
4. Rights to inspect and have a copy of the books of accounts.
5. Rights to disallow the admission of a new partner.
6. Is the joint owner of the partnership property.
7. Rite to retire from the firm after giving a notice.
8. If a partner has advanced a loan, he has the right to receive interest at the interest rate. If the rate of interest in not agreed it is paid at 6% p.a.

Question 4

Partnership Deed

Answer 4

A written agreement that contains the terms of the agreement.
1. Description of the partners
2. Description of the firm
3. Principal Place of Business
4. Nature of Business
5. Commencement of Partnership
6. Capital Contribution
7. Interest on capital
8. Interest on drawings
9. Profit sharing Ratio
10. Interest on Loan
11. Remuneration to partners
12. Valuation of goodwill
13. Valuation of Assets
14. Settlement of Account
15. Accounting Period
16. Rights and Duties of Partners
17. Duration of Partnership
18. Bank Account Operation
19. Death of a Partner
20. Settlement of Disputes

Question 5

Importance of Partnership Deed

Answer 5

> It regulates the rights, duties, and liabilities of each partner
It helps to avoid any misunderstanding among the partners
Any disputes among the partners could be settled easily

Question 6

Opening Capital (formula)

Answer 6

Opening capital= Closing capital+ Drawings− additional capital− Profits

Question 7

Interest on drawing− Product method (formula)

Answer 7

Total Product x 12/100 x 1/12