Preparing the final financial statements of a partnership There is not much difference between the final financial statements of a sole proprietorship and those of a partnership. The only difference is the distribution of the result among the shareholders, for whom a transfer of profits and losses must be created. Due to the limitation of retail activity in terms of limited capital, limited management skills, small scope of the business, carries more risk due to unlimited liability, the constraining need of the partnership arises. A partnership is a relationship of mutual trust and faith. There are certain peculiarities in the financial statements of the partnership company compared to those prepared in the retail company. The main features of partnership accounting are the management of partners` capital accounts, the distribution of profits to partners, etc. Provisions of the Partnerships Act of 1932, applicable to accounting rules that apply in the absence of a company deed Sometimes all partners or former partners guarantee a new partner a minimum profit account if their share of the profit is less than the profit-sharing ratio according to the Chapter on the Accounting of the Company. The difference is borne either by all partners or by those who gave the guarantee. Partners are both representatives and customers of all other partners. Each partner may bind other partners by his shares and is also linked to the shares of other partners in connection with the affairs of the company. The relationship of the mutual agency is such an important feature of the partnership that it can be said that there would be no partnership if this characteristic is missing, INTEREST ON CAPITAL Interest on partner capital is only allowed if it has been expressly mentioned in the deed of company. If interest on the capital is allowed under the agreement, it must be calculated based on the time, the interest rate and the amount of the principal.
Interest on capital may be treated as follows:a. A use of the prize; Sphere. An indictment against profit. The partnership company is created when two or more people come together to start businesses and share their profits. The most important provisions that affect partnership accounts are the following: The company deed is a written agreement between the partners that contains the terms of the contract. It is also known as a « partnership article ». A company deed must contain the following points: In general, the partners do not receive a stake in the capital contribution that is made to the company according to the company`s accounts. If the deed stipulates that the interest must be credited, it will be granted at an agreed rate. There are two circumstances in which interests are given. If the contribution to the capital is higher and the profits are divided equally, and two if the contribution is the same and the participation in the profits is unequal.
Provisions relating to the (touching) accounting of the partnership: Normally, the company deed covers all matters related to the mutual relationship between the partners. However, if the partnership is silent on certain matters or there is no act, the provisions of the Indian Partnership Act, 1932 apply. A company deed refers to the written agreement signed and revised by all the partners of a company in accordance with the accounting chapter of the company. The partnership agreement may be in oral or written form and constitutes a company deed if: 1. Name and address of the law firm and partners.2. Name and address of partners.3. Type and place of establishment.4. Duration, if any, of the company.5. Capital contribution of each partner.6. Interest on capital.7.
Subscriptions and interest on subscriptions.8. Profit-sharing rate.9. Interest on loans.10. Partner`s salary/commission, etc. 11. Method of valuing goodwill and assets.12. The company`s billing period and duration of the partnership13. Rights and obligations of partners on how disputes are resolved.14. Decisions made when a partner becomes insolvent.15. Opening a bank account – while it will be in the name of the company or partner. 1.
Simple method of interestIn this method, the drawing interest for each drawing amount is calculated individually on the basis of the periods for which it was withdrawn until the end of the settlement period. Any modification of the existing partnership contract constitutes a reconstitution of a company. As a result, the existing agreement ends and a new agreement is concluded and the company continues. 1. Types of revival of a partnership The reconstitution of a partnership may be carried out in one of the following ways: (i) Modification of the rate of participation in the profits of existing members. (ii) Admission of a new partner. (iii) Retirement of an existing partner. (iv) Death of a partner. 2. Change in the profit-sharing ratio between existing partners When one or more partners acquire an interest in the company from one or more other partners, this is referred to as a change in the profit-sharing ratio in a partnership.
A change in the success rate among existing partners means that it is a reconstitution of the business without the admission, retirement or death of a new partner. The sacrifice or profit a partner makes is calculated by subtracting the new share from a partner`s old share. Victim share/(profit) = old share – new share Reconstitution of a partnership: evolution of the profit-sharing ratio 43 3. Adjustments required at the time of the change in the profit-sharing ratio (i) Determination of the casualty rate and profitability ratio New profit-sharing ratio This is the ratio in which shareholders must participate in the income statement in the future. Victim relationship It is the relationship in which the partners have agreed to sacrifice their share of the profit for the benefit of other partners or partners. This ratio is calculated by excluding the difference between the old profit share and the new profit share. Victim Ratio = Old Ratio – New Profit Ratio This is the ratio in which the partners have agreed to earn their share of the profit from other partners. This ratio is calculated by excluding the difference between the new profit share and the old profit share.
Profit ratio = New ratio – Old ratio (ii) Treatment of goodwill on the balance sheet The entry to be transferred to adjust goodwill if the profit-sharing ratio is Gaining Partners` Capital/Current A/c Dr [In gaining ratio] To Sacrificing Partners` Capital/Current A/c [In sacrificing ratio] Treatment of existing goodwill (if any), the one in the company`s books is amortized by debiting it from its former profit-sharing ratio from the capital accounts of all partners and crediting it to the goodwill account. The entry is Capital/Current of all partners Dr [In alter Ratio] To Goodwill A/c (iii) Revaluation of assets and revaluation of liabilities (a) When revised values are to be recorded in the books and records An account entitled « Revaluation account or « Profit and loss adjustment account » is opened for the revaluation of assets and the revaluation of liabilities. Format of the revaluation account (b) If the revised values are not to be recorded in the books and records Where the partners decide to recognise the net impact of the revaluation of assets and liabilities without affecting the former amount of assets and liabilities, a single adjustable heading (`) shall be adopted with the capital accounts of the winning partners and the sacrificial partners. (iv) Accounting treatment of reserves, accumulated profits or losses Adjustment of reserves and gains/losses accumulated through capital accounts A single adjustment item comprising the capital accounts of the sacrificial and beneficial partner is passed on if the partners decide to recognise the net effect of reserves and accumulated gains/losses without affecting the old figures. In the case of a lucrative capital of the partner A / c Dr Sacrifice the capital of the partner A / c In case of loss victim of the capital of the partner A / c Dr To GainIng Partner Capital A / c each year. The only difference between the accounting of a sole proprietor and that of a partnership is that the profits of the partnership are distributed among the partners. As you browse this CBSE Class 12 Accountancy Notes Chapter 2 Accounting for Partnership: Basic Concepts, students can quickly remember all the concepts. Filed Under: CBSE Tagged With: Accounting, Accounting Class 12, Cbse Notes, Class 12 Notes, NCERT Notes, Revision Notes Here are some provisions of the Indian Partnership Act, as mentioned in the chapter Partnership Accounting, that apply to company deeds. They are: Act of partnership: A partnership is formed by an agreement, it is important that there are certain conditions agreed by all partners. These terms and conditions or agreements may be concluded in writing or orally. However, the Partnerships Act does not explicitly require that a written agreement be entered into. But to avoid all misunderstandings and disputes, it is always the best way to have a written agreement properly signed and registered in accordance with the law.
4. Reciprocity Agency: The partnership enterprise can be operated by all partners or one of them acting for all. This declaration means that each partner has the right to participate in the conduct of the affairs of his company and that there is a mutual official relationship between all the partners. According to partnership accounting, certain aspects of partnership accounts distinguish them from other partnerships: a written document that contains the terms of the partnership is called a « partnership deed ». .