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Partnership

The document discusses key features and concepts related to partnerships, including the definition of a partnership, features of a partnership firm such as plurality of persons and sharing of profits, partnership deeds and their importance, adjustments made on admission of a partner such as calculation of new profit sharing ratio and treatment of goodwill, retirement and admission of partners, gaining ratio, and realization account.

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33 views

Partnership

The document discusses key features and concepts related to partnerships, including the definition of a partnership, features of a partnership firm such as plurality of persons and sharing of profits, partnership deeds and their importance, adjustments made on admission of a partner such as calculation of new profit sharing ratio and treatment of goodwill, retirement and admission of partners, gaining ratio, and realization account.

Uploaded by

jashanvipan1290
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Partnership : according to Section 4 of a Partnership Act 1932.

Partnership" is
the relation between persons who have agreed to share the profits of a
bFEATURES OF PARTNERSHIP

features of a partnership firm :

1 Agreement. In order to have a partnership, it is necessary that there must be


an agreement between partners. In other words partnership does not come in
to existence by any natural relationship rather contractual relationship is
required for creating partnership. The agreement to form a partnership may
be in writing or oral.

2. Plurality of Persons. To form a partnership atleast two persons are required.


The maximum number of persons is fifty vide rule 10 of companies
(Miscellaneous) Rules, 2014.

3. Lawful Business. It is essential that the partnership is formed for doing lawful
business to earn profits. Any agreement to do unlawful activity or to own a
joint property is not a business.

4. Voluntary Association. A partnership is a voluntary association of individuals.


The partnership firm has no separate legal existence. The partners and firm are
treated as one and the same.

5 Sharing of Profits. It is essential that the partners share profits of the firm
according to predetermined ratio. Clubs, charitable institutions, religious
bodies etc., which are constituted primarily for non-business activities do not
share profits, therefore, they are not partnership firms.

6 Non-transferability of Interest. No partner can transfer his share in the


partnership without the prior consent of all other partners.

7 Unlimited Liability. The liability of the partners (not minor partner) is


unlimited. In case firms assets are not sufficient to meet the liabilities of firm,
they are liable to pay the claims of the firm out of their personal assets.

8 Act. The Partnership business is governed by Partnership Act 1932.usiness


carried on by all or any of them acting for all.
Partnership deed :Partnership is a commercial relationship among the
spartners. There must be agreement among the partners for the practical
application of this relationship. This agreement may be in writing or oral.
According to Kohler "Partnership agreement (Deed) is an instrument drafted
and signed by partners for defining the various rules and regulations of the
firm".
IMPORTANCE OF PARTNERSHIP DEED

Partnership deed is not required under law. It is an optional


document/instrument which is prepared by the partners mutually.

It serves the following purposes:

(a) It defines the rights, duties and liabilities of each partners. This helps in
smooth functioning of the firm.

B) It is a legal document which help in settling the dispute which may arise
amongst partner in future.

C) Accounting record becomes more genuine and transparent, as the


partnership deed guides about the various issues of accounting such as,
interest on capital, interest on drawings, salary, commission etc. payable to
partners.

Revaluation account is a nominal account, which is prepared for the


distribution and transfer of profits and losses arising due to the increase and
decrease of the book value of assets and liabilities during change in profit
sharing ratio, admission of a partner, retirement of a partner and death of a
partner.

Change in profit sharing ratio occurs when there is change in either capital
contribution of the partners or in active participation in the management.
Sometimes it is decided by the existing partners to change their Profit sharing
ratio. This change may result in gain to a few partners and loss to others.

Sacrificing ratio is simply the difference between the old ratio and the new
ratio of the old partners. In other words, sacrificing ratio simply refers to the
ratio in which the old partners of a partnership firm surrender their share of
profit in favor of the new partner. Sacrificing Ratio = Old Ratio — New Ratio
ADJUSTMENTS MADE ON ADMISSION OF A PARTNER
1 Calculation of new profit sharing ratio and sacrificing ratio.
2. Goodwill and its treatment in accounts.
3. Revaluation of assets and liabilities of the firm.
4. Assets & Liabilities taken over by partners
5. Adjustment regarding reserves, accumulated profits & losses.
6. Adjustment of capital accounts of the old partners.

Retirememt of a paertner: Withdrawal of a partner from the partnership with


the consent of other partners or as per the provisions of the partnership deed
or by giving notice of retirement is termed as retirement of a partner. A
partner who cut his connection with the firm is called a retiring partner or
outgoing partner

Addm. Of partner :- As per section 31 of the Indian Partnership Act, 1932, A


new partner can be admitted into a firm with the consent of all the partners.
When a new partner is admitted, the existing partnership agreement comes to
an end and a new agreement comes into effect. This is called reconstitution of
partnership..

Gaining Ratio? Gaining ratio is a type of financial tool that is helps in


determining the proportion by which the remaining partners of a firm will
share the profits of an existing partner in the event of his death or retirement.
The ratio by which they share the profits is known as gaining ratio.

Realisation account At the time of dissolution of a firm all the books of


account are closed, all assets are sold and all liabilities are paid off. In order to
record the sale of assets and discharge of liabilities a nominal account is
opened known as realisation account.

Goodwill is the present value of expected future income in excess of a normal


return on the investment in tangible assets."
-Eric L. Kohler

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