Accounting for Partnership: Basic Concepts Class 12 Notes: CBSE 12th Accountancy Chapter 1, Download PDF

CBSE Class 12 Accounting for Partnership Basic Concepts Notes: Here, students can find revision notes of CBSE Class 12 Accountancy Chapter 1 Accounting for Partnership: Basic Concepts along with a PDF download link for the same.

Accounting for Partnership Basic Concepts Class 12 Notes: In this article, students can find accounting for Partnership Basic Concepts class 12 notes along with a PDF downloadable link. This CBSE accounting for partnership basic concepts class 12 short notes will assist students in preparing for their CBSE Board Examinations. These handwritten notes are specifically for students of the current academic session 2023-2024, who are going to sit for their Board Exams in 2024.

Revision Notes are the compilation of all the necessary and relevant information from the chapter required by a student to prepare for the examination. This accounting for partnership basic concepts class 12 handwritten notes consist of all the important information along with journal entries and formulas required by students from the exam’s point of view.

Notes are quite handy to refer to whenever required. At the same time, students can also utilize it to do quick revisions during examinations. Class 12 Accountancy Chapter 1 notes will clear your doubts related to the chapter and solutions.

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 Accounting for Partnership Basic Concepts Class 12 Revision Notes

Find here complete Accounting for Partnership Basic Concepts Class 12 Notes based on the CBSE Class 12 Accountancy Part 1 Chapter 1, Accounting for Partnership Basic Concepts:

 What is Partnership?

A partnership can be defined as “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”.

Nature of Partnership

• Two or more persons are required to form a partnership
• It is created by an agreement
• The agreement should be for carrying on some legal business
• sharing of profits and losses
• relationship of mutual agency among the partners
• Each partner is equally liable for all the losses, profits, and decisions

 Which law governs Partnerships in India?

Indian Partnership Act of 1932  is applied in India to look at the peculiarities of partnership firms and governing the methods of partnership in the country.

What is a Partnership Deed?

The document that consists of terms of agreement for a partnership is called a partnership deed. It does not necessarily have to be written, but a written one is preferred. A partnership can come into existence only after all the partners have signed the deed.

Contents of Partnership Deed

• Names and Addresses of the firm and its main business
• Names and Addresses of all partners
• Amount of capital to be contributed by each partner
• The accounting period of the firm
• The date of commencement of partnership
• Rules regarding the operation of Bank Accounts
• Profit and loss sharing ratio
• Rate of interest on capital, loan, drawings, etc
• Mode of auditor’s appointment, if any
• Salaries, commission, etc., if payable to any partner
• The rights, duties, and liabilities of each partner
• Treatment of loss arising out of insolvency of one or more partners
• Settlement of accounts on the dissolution of the firm
• Method of settlement of disputes among the partners
• Rules to be followed in case of admission, retirement, or death of a partner
• Any other matter relating to the conduct of business. Normally, the partnership deed covers all matters affecting the relationship of partners amongst themselves. However, if there is no express agreement on certain matters, the provisions of the Indian Partnership Act, of 1932 shall apply

Important Provisions of Partnership Act

• If the partnership deed is silent on the profit-sharing ratio, all the partners will receive equal profits irrespective of their capital distribution in the firm
• No interest on capital is payable if the partnership deed is silent on the issue
• No interest is to be charged on the drawings made by the partners if there is no mention in the Deed
• If any partner has advanced loan to the firm for the purpose of business, he/she shall be entitled to get an interest on the loan amount at the rate of 6 percent per annum.
• No partner is entitled to get a salary or other remuneration for taking part in the conduct of the business of the firm unless there is a provision for the same in the Partnership Deed.
• If a partner derives any profit for him/herself from any transaction of the firm or from the use of the property or business connection of the firm or the firm name, he/she shall account for the profit and pay it to the firm.
• If a partner carries on any business of the same nature as and competing with that of the firm, he/she shall account for and pay to the firm, all profit made by him/her in that business.

 Special Aspects of Partnership Accounts

• Maintenance of Partners’ Capital Accounts- The Capital accounts of partners are maintained by two methods. Fixed Capital Method and Fluctuating Capital Method.
• Distribution of Profit and Loss among the partners
• Adjustments for Wrong Appropriation of Profits in the Past
• Reconstitution of the Partnership Firm
• Dissolution of Partnership Firm

 What is Fixed Capital method?

In the fixed capital method, the capital of the partners remains the same unless additional capital is introduced or withdrawn as per the partnership deed. The capitals of the partners shall remain fixed unless additional capital is introduced or a part of the capital is withdrawn as per the agreement among the partners. They always appear on the liabilities side of the balance sheet.

What is Partner’s Current Account?

The account that maintains a record of all items like a share of profit or loss, interest on capital, drawings, interest on drawings, etc. is called the Partner’s Current Account. It shows the debit as well as the credit balance. Partners’ current account balance shall be shown on the liabilities side if they have a credit balance and on the assets side if they have a debit balance.

What is Fluctuating Capital method?

In the fluctuating capital method, only one account i.e. capital account is maintained.  All the adjustments such as share of profit and loss, interest on capital, drawings, interest on drawings, salary or commission to partners, etc. are recorded directly in the capital accounts of the partners. This makes the balance in the capital account fluctuate from time to time.

Differences between Fixed and Fluctuating Capital method

Differences between fixed and fluctuating capital methods are:

What is Profit and Loss Appropriation Account?

Profit and Loss Appropriation Account is an extension of the Profit and Loss Account of the firm. It shows how the profits are appropriated or distributed among the partners. All adjustments in respect of the partner’s salary, partner’s commission, interest on capital, interest on drawings, etc. are made through this account. It starts with the net profit/net loss as per the Profit and Loss Account. 

Guarantee of profit to a partner

Sometimes a partner is admitted into the firm with a guarantee of a certain minimum amount by way of his share of profits of the firm. Such assurance may be given by all the old partners in a certain ratio or by any of the old partners, individually to the new partner. The minimum guaranteed amount shall be paid to such a new partner when his share of profit as per the profit sharing ratio is less than the guaranteed amount.

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