Accounting of Partnership firm- fundamentals (Part 1)
Definition: As per Sec. 4 of Indian Partnership Act, 1932, “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all.”
Features/Characteristics
of Partnership
- Ø
Two
or more persons
- Ø
Agreement/
Partnership Deed
- Ø
Existence
of Business for Profit Motive
- Ø
Sharing
of Profit
- Ø
Relationship
of Principal and agent
- Ø Business carried on by all or any one of them acting for all.
- Ø No separate existence.
Rights of a Partner
- Ø Right to share Profits and losses.
- Ø Right to take part in affairs of the business.
- Ø Right to be consulted
- Ø Right to inspect books of accounts.
- Ø Right to deny admission of new partner.
- Ø Right to claim joint ownership on the assets of the business.
- Ø Right to claim interest on loan given to the business. If not agreed, then @ 6% p.a.
- Ø Right to get reimbursed.
- Ø Right to get retired after giving proper notice.
- Partnership Deed
Before
entering into the business there are certain terms and conditions which are pre
decided by all of the partners. These terms and conditions may be either oral
or written. The law does not make it compulsory to have a written agreement. To
avoid all misunderstandings and disputes, it is always the best course to have
a written agreement duly signed by all partners and registered under the Act.
Such a written agreement is called as Partnership
Deed.
The
Partnership Deed should contain
following points/ clauses:
1.
Date
of commencement of partnership.
2.
The
name and address of the firm.
3.
Names
and addresses of the partners.
4.
Type
and nature of the business.
5.
Amount
of capital to be contributed by each partner and whether the capital account is
fixed or fluctuating.
6.
Interest
on Capital.
7.
Drawing
and interest thereon.
8.
Profit
sharing ratio.
9.
Salary
to the partner.
10.
Method
for valuation of Goodwill.
11.
Accounting
Period of the firm.
12.
Duration
of partnership
13.
Bank
Account and its operational rights.
14.
Rules
to be followed in case of admission or retirement of the partners.
15.
Method
for settlement of disputes.
Comments
Post a Comment