INSTITUTE OF COMMERCE STUDIES _

Branches :- Adajan - Vesu - Parvat Patia Contact :- 8000064962

Chapter 1
Accounting for partnership - Fundamentals
Important Points to be remembered

1) Define Partnership :- As per section 4 of Indian Partnership Act, 1932, Partnership is the relation between
persons who have agreed to share profits and losses of the business carried on by all or any of them acting for all.

2) Individually – Partners
Collectively - Partnership Firm

3) Name Under which Partnership is carried on is Called “FIRM NAME”

4) Valid Partnership – Only when there is profit motive not charitable purpose

Business Purpose that is long term relation.

5) Liability Of Partners – Unlimited

6) Minimum Partners – 2

Maximum Partners – 50 as per Rule 10 of the companies (miscellaneous) rules 2014

7) Who is not competent to be a partner - a) Minor

b) Person of Unsound Mind
c) Person Disqualified by law

8) Partnership Deed – Written Agreement among the partners is called Partnership Deed.

9) Rights of Partner – a) Management

b) Affairs of the business
c) Inspect books of accounts & Make its copy
d) Share profit & Loss In agreed Ratio

10) Partnership Deed - Not essential / Compulsory but desirable

In absence of partnership Deed Provisions of Partnership Act 1932 Applicable.

11) In Absence Of partnership Deed / When Partnership Deed is Silent-

Cases Applicability
1) Profit & Loss Sharing Equally
2) Interest on Capital Not Allowed
3) Interest on Drawings Not Charged
4) Interest On Partners Loan 6%
5) Salary/Remuneration/Commission etc. Not Allowed
 INSTITUTE OF COMMERCE STUDIES _
Branches :- Adajan - Vesu - Parvat Patia Contact :- 8000064962

12) Difference between charge Against Profit & Appropriation of profit.

Charge against Profit – Chahe Profit Ho Ya Loss Charge Against Likha Lain to Dena He Padega
(Note:- Interest On Partners Loan & Rent always Charge Against Profit)

Appropriation of Profit – If Profit hoga to he milega varna nahi milega

Example :- Net Profit – 80,000 Rs.

Interest On Capital Partner A – 60,000
Partner B – 40,000

Net Profit Rs.80,000

Interest On Capital
A- 60,000 B- 40,000
P&L Ratio 1:1

Charged Appropriation
Against Profit Of Profit

80,000 Net Profit Rs. 80,000 will be distributed in

Less 1,00,000 Interest On Capital the ration of 3:2
(20,000) Loss (Note :- Jitna Dena Hain Uske
Ratio Main)
To Be distributed in the P&L
Ratio that is 1:1.

A's Share 48,000

A's Share of Loss 10000 B' Share 32,000
B's Share of Loss 10000
 INSTITUTE OF COMMERCE STUDIES _
Branches :- Adajan - Vesu - Parvat Patia Contact :- 8000064962

13) Methods Of Maintenance Of Capital Account

Methods to maintain
Capital Account

Fixed Capital
Method Fluctuating Capital
Method

Capita A/c Current A/c

Capital A/c

All other entries of

Tabhi entry hogi jab
permanent capital leke
aayenge ya permanent
withdrawl hoga tab.
Eg. Additional Capital &
Drawings Against
Capital
Interest on capital,
Interest on drawings,
Salary, Commission,
Drawings against profit,
Share of profit Or Loss
etc will be made here.
All entries will be made
in this account only eg.
Interest on capital,
Interest on Drawings,
Salary, Commission,
Additional capital,
drawings, Share Of
Profit Or Loss etc.)
 INSTITUTE OF COMMERCE STUDIES _
Branches :- Adajan - Vesu - Parvat Patia Contact :- 8000064962
14) Reserve – Reserve is an amount set aside out of profit to strengthen the financial position of the firm or to meet
an unforeseen liability.

15) Commission or Remuneration :-

Commission/Remuneration

Before After

Profit Before Commission X Rate of commission Profit Before Commission X Rate of commission
100 100+Rate of Commission

16) Interest On Drawings :-