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karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS


karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS

karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS;- we will provide complete details of karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS in this article.

karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS

karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS

karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS:-Partnership and its Accounting

Partnership is association of two and more persons for getting business objectives . They make partnership deed in written form and they register their partnership in Registrar of Partnership firms . The liability of partnership is unlimited . It means if partnership firm is unable to repay the loan , then personal assets of partners can be used for repayment of loan of partnership.

They have to maintain their accounts also .

There main reasons of maintaining partnership accounts .

  1. For division of profit or loss from partnership
  2. for division of properties in case of dissolution of partnership

In partnership accounts you must open profit and loss appropriation account . It is accounts in which accountant can adjust salary , interest on capital and interest on drawing and also new division of profit or loss . So it is necessary to make this account . At the time of admission , partnership accounts can be change .

Because Capital accounts will change because , old partner sacrify for new partner so it is the duty to new partner to give some part of goodwill in cash of any other way . So that other partner can credit it in their capital accounts .

karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS:-Partnership Deed

Partnership is the result of an agreement. Partnership agreement is a contract on the basis of different terms. Both parties are agree to follow the terms and conditions of this contract. This contract may be written or oral. When this contract is done in the form of written agreement, then this becomes the partnership deep. Partnership deed is the collection of all terms and conditions of written partnership agreement.

Definition of Partnership Deed

“The document in writing containing the various terms and conditions as to the relationship of the partners to each other is called the partnership deed.”

Following things will include in the partnership deed :

1. Name of the firm and nature of the firm.
2. Date of commencement of business.
3. Value of the capital of firm and the proportion of partners in it.
4. Ratio of division of  profit or loss among the partners.
5. Total maximum value of drawing.
6. What will be the salary of partners?
7. Will the capital account be fixed or fluctuating?
8. How to bring new capital in the time of necessity?
9. How to evaluate the goodwill at the time of death or retirement of any partner?
10. Main duties and liabilities
11. Any term or condition except above.

karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS:-Fixed and Fluctuating Capital

In partnership accounts, we maintain the capital accounts with two ways. We can either keep fixed capital account and fluctuating capital account. Both are capital accounts but there is small difference of maintaining them.

1. Fixed Capital 

When we show partners’ opening capital fixed in all the year, we open the capital accounts of partner. Opening and closing balance will be same in it.

we have to open current accounts of partners. All the adjustments like interest on capital, taken drawing and salary adjustments are done in partners’ current account

2. Fluctuating Capital

Fluctuating capital fluctuate everytime when any partner withdraw the money or bring fresh capital or doing any other adjustment with his capital. For showing this, we make the capital account of each partner. We do all the adjustment in the capital account. In these adjustments, we can include interest on capital, profit share, drawing and salary. Opening capital balance,  Interest on capital, profit share and salary will go to its credit side. Drawing will be credit in this account. Difference of credit and debit side will be the closing balance.

karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS:-Guarantee of profits

An assurance is given to a partner that a minimum amount is given to him irrespective of profits

The firm or the partner who has given the guarantee is DEBITED

The partner to whom guarantee has been given is CREDITED.

This guarantee can be given in any one of the following forms—-

(Guarantee of minimum profits to a partner by firm)

karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS:-Change in Profit Sharing Ratio

Meaning of Change in Profit Sharing Ratio 

Changing in Profit sharing ratio means to change the ratio from old ratio to new ratio. Now, we think, why did partner take this decision? Very simple answer. They normally take this decision when they see that division among the partner is not good. For example, you are 4 brothers. You are living in a big house. Now, you have decided to divide this. If one of your brother got 70% proportion and other three is just getting 30% proportion. It will be real Justice. Actually, 90% is 90/100 or 9/10 and 30% is 30/100 or 3/10. So, their ratio is 7 : 1 : 1 : 1. So, it is not good. Every brother should have equal right. They have to get 25%. So, three brother went to court and court has given decision to change the ratio from 7 : 1 : 1 : 1 to 1 : 1 : 1 : 1.

Above example is just for your learning. Like this, when a partner sees that he bring more capital. He does more work but he gets less proportion of profit. He can demand share of profit in total profit. At that time, other partner may agree to change the ratio for giving him more proportion.

How to Change in Profit Sharing Ratio 

Changing in profit sharing ratio is done on the basis of justice rule. When we change the ratio from old to new, it will give more benefit to some partner, it may give more loss to other partner. So, all the partners who will suffer loss of profit due to changing in the profit sharing ratio. So, gaining partners will give money to loss suffering partners if their capital is already equal or on past agreement basis. This money can be given in the form of goodwill. Goodwill is intangible asset but for getting other partner’s share, it can be given.

Let me explain with an example 

A and B are two partner. They divide the profit in the ratio of 5 : 3, it means 62.5 : 37.5  or 62.5% and 37.5%. Now, they decided to divide in 3 : 1. It means new ratio will be 75 : 25 or 75% for A and 25% for B. It means, A is getting 75% – 62.5% = 12.5% benefit after changing in the ratio and B is suffering 12.5% loss after changing in the ratio. So, it is the duty of A that he should pay the money in the form of goodwill to b.

Suppose, total goodwill is Rs. 20,000 and its 12.5% is Rs. 2500 which is paid by A to B.

karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS

karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS

Recommended Read:-karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS

karnataka class 12 commerce Accountancy CH2 ACCOUNTING FOR PARTNERSHIP FUNDAMENTALS

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