English Section
Main Topics:
- Definition and Features of Partnership
- Partnership Deed and its Contents
- Provisions of Partnership Act 1932
- Partners' Capital Accounts (Fixed vs. Fluctuating)
- Profit & Loss Appropriation Account
- Interest on Capital and Drawings
- Guarantee of Profit to a Partner
- Past Adjustments
Partnership
When a business wants to grow, one person's money and effort may not be enough. Two or more people can join together to run a business and share the profits and losses. This is called a Partnership. It helps overcome problems of a single owner like limited money, limited skills, and more risk.
Definition: Section 4 of Indian Partnership Act 1932 defines partnership as "the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all."
Example 1: Amit has ₹50,000 but isn't good at selling. Sunil is great with customers but has no money. They decide to start a mobile shop together. Amit will manage money, Sunil will handle customers. They agree to share profits equally. This is a partnership.
Example 2: Priya is a baker, Reena has an empty shop. They start a bakery. Priya bakes, Reena manages the shop. They invest money together and share profits. This is also a partnership.
Essential Features of a Partnership (Must Remember):
- Two or More Persons: Minimum 2, Maximum 50 (or 100 as per Companies Act, but Govt. limits to 50).
- Agreement: It arises from an agreement (written or oral).
- Business: The agreement must be to run some lawful business.
- Sharing of Profit: The main motive is to share profits (and losses) of the business.
- Mutual Agency: Every partner is an agent of the firm. Business can be carried on by all or any one acting for all.
- Unlimited Liability: Each partner's personal assets can be used to pay firm's debts.
Partnership Deed
Contents of Partnership Deed:
- Name and address of the firm and partners
- Nature of business and place of business
- Capital contribution by each partner
- Profit and loss sharing ratio
- Interest on capital, drawings, and partner's loan
- Salary, commission or remuneration to partners
- Rules regarding admission, retirement, death of a partner
- Method of settlement of disputes
Contents of a Partnership Deed include: Names of firm & partners, nature of business, capital contributed by each, profit-sharing ratio, interest on capital & drawings, partner's salary/commission, rules for admitting a new partner, handling retirement or death, and how to settle disputes.
Provisions of the Indian Partnership Act, 1932 (If Deed is Silent):
These rules apply if the Partnership Deed does not mention something.
- Profits & Losses: Shared equally.
- Interest on Capital: Not allowed.
- Interest on Drawings: Not charged.
- Salary/Commission to Partners: Not allowed.
- Interest on Partner's Loan: Allowed @ 6% per annum.
Think About It: Raj and Jai are partners without a written deed. Raj contributed ₹4,00,000 capital and Jai ₹1,00,000. Raj also gave a loan of ₹2,00,000 to the firm. They now have a profit of ₹50,600. Raj wants interest on capital and loan at 10%. Jai wants profits shared equally. What is the correct position as per the Partnership Act?
Hint: Apply the 5 rules above. No interest on capital. Interest on loan is only at 6%. Profits must be shared equally.
Hint: Apply the 5 rules above. No interest on capital. Interest on loan is only at 6%. Profits must be shared equally.
Practice Problem: Mohan and Shyam are partners. The partnership agreement is silent on the following. Are their claims valid?
- Mohan (active partner) wants a salary of ₹10,000 per year. Answer: Invalid
- Shyam gave a loan and claims 10% interest. Answer: Only 6% is valid
- Mohan contributed ₹20,000 and Shyam ₹50,000 as capital. Mohan wants equal share in profits. Answer: Valid, profits are shared equally if deed is silent.
- Shyam wants 6% interest on capital. Answer: Invalid
Partners' Capital Accounts
All money-related transactions with a partner are recorded in their Capital Account. There are two methods to maintain this account.
| Fixed Capital Method | Fluctuating Capital Method |
|---|---|
| Two separate accounts: Capital A/c and Current A/c. | Only one account: Capital A/c. |
| Capital A/c balance remains fixed unless more capital is added or withdrawn permanently. | Capital A/c balance changes (fluctuates) every year. |
| Items like drawings, interest, salary, profit/loss are recorded in the Current A/c. | All items are recorded directly in the Capital A/c. |
| Appears in Balance Sheet: Both Capital A/c and Current A/c. | Appears in Balance Sheet: Only the Capital A/c. |
Illustration Problem: Sameer (Capital ₹15,00,000) and Yasmin (₹10,00,000) share profits 3:2. During the year: Sameer introduced additional capital ₹3,00,000, drawings ₹30,000, interest on drawings ₹1,800, salary ₹20,000, commission ₹10,000, share of profit ₹60,000. Prepare their Capital and Current Accounts under Fixed Capital Method.
Key: In Fixed Capital method, the Capital A/c will only show opening balance, additional capital, and closing balance. All other items go to Current A/c.
Key: In Fixed Capital method, the Capital A/c will only show opening balance, additional capital, and closing balance. All other items go to Current A/c.
Profit & Loss Appropriation Account
This account shows how the net profit of the firm is distributed among the partners. It is an extension of the Profit and Loss Account. We make all adjustments for partners (like interest, salary) here before dividing the final profit or loss.
Format & Important Journal Entries:
Profit and Loss A/c Dr. [Net Profit Amount]
To Profit and Loss Appropriation A/c
- Start with Net Profit/Loss from P&L A/c.
- Debit Side (Additions): Interest on Capital, Partner's Salary, Commission.
- Credit Side (Deductions): Interest on Drawings.
- Final Figure: The remaining profit or loss is transferred to partners' Capital/Current A/cs in their profit-sharing ratio.
Profit and Loss A/c Dr. [Net Profit Amount]
To Profit and Loss Appropriation A/c
Illustration Problem: Amit, Babu and Charu are partners with capitals ₹50,000, ₹40,000 and ₹30,000 sharing profits 3:2:1. Amit gets ₹1,000 p.m. salary, Babu gets ₹5,000 commission. Interest on capital @6% p.a. Drawings: Amit ₹6,000, Babu ₹4,000, Charu ₹2,000. Interest on drawings: Amit ₹270, Babu ₹180, Charu ₹90. Net Profit before adjustments is ₹35,660. Prepare P&L Appropriation A/c.
Steps: 1) Calculate interest on capital (Amit: ₹3,000, Babu: ₹2,400, Charu: ₹1,800). 2) Debit Appropriation A/c with salaries, commission, interest on capital. 3) Credit with interest on drawings (₹540). 4) Balance profit = ₹35,660 + ₹540 - (₹12,000+₹5,000+₹7,200) = ₹12,000. 5) Distribute ₹12,000 in 3:2:1 ratio.
Steps: 1) Calculate interest on capital (Amit: ₹3,000, Babu: ₹2,400, Charu: ₹1,800). 2) Debit Appropriation A/c with salaries, commission, interest on capital. 3) Credit with interest on drawings (₹540). 4) Balance profit = ₹35,660 + ₹540 - (₹12,000+₹5,000+₹7,200) = ₹12,000. 5) Distribute ₹12,000 in 3:2:1 ratio.
Interest on Capital
Interest on capital is given to partners only if the Partnership Deed allows it. It is calculated on the money they have invested in the firm. It is an appropriation of profit, meaning it is given only if there is profit.
How to Calculate:
- On Opening Capital: For the full year.
- On Additional Capital: From the date it was introduced till the end of the year.
- If capital is withdrawn: Calculate interest on the opening capital till the date of withdrawal, then on the reduced capital for the remaining period.
- Interest on ₹2,00,000 for 12 months: ₹12,000
- Interest on ₹1,00,000 for 8 months (Aug-Mar): ₹4,000
- Total Interest = ₹16,000
- Interest on ₹2,00,000 for 3 months (Apr-Jun): ₹4,000
- Interest on ₹2,50,000 for 3 months (Jul-Sep): ₹5,000
- Interest on ₹2,20,000 for 6 months (Oct-Mar): ₹8,800
- Total Interest = ₹17,800
Important Rules:
- No Interest if there is Loss: If the firm makes a loss, no interest on capital is given. (Illustration 7 in PDF).
- Profit is Less than Interest: If profit is ₹14,000 but interest due is ₹28,000, then the ₹14,000 is distributed as interest in the ratio of interest due (3:4).
- Opening Capital not given? Calculate: Closing Capital + Drawings - (Additional Capital + Share of Profit + Salary/Commission).
Interest on Drawings
Drawings are money or goods taken by partners for personal use. Interest is charged on drawings only if the Partnership Deed allows it. It discourages partners from taking out too much money.
Method 1: Simple Method (Exact Date Given)
Example: A partner withdrew ₹10,000 on October 1, 2019. Books close on March 31, 2020. Interest rate is 10% p.a.
Period = 6 months (Oct 1 to Mar 31).
Interest = ₹10,000 × (10/100) × (6/12) = ₹500
Example: A partner withdrew ₹10,000 on October 1, 2019. Books close on March 31, 2020. Interest rate is 10% p.a.
Period = 6 months (Oct 1 to Mar 31).
Interest = ₹10,000 × (10/100) × (6/12) = ₹500
Method 2: Product Method (Different amounts & dates)
Example: Shahnaz withdrew: ₹16,000 (Apr 1), ₹15,000 (Jun 30), ₹10,000 (Oct 31), ₹14,000 (Dec 31), ₹11,000 (Mar 1). Rate 7% p.a.
Interest = (Total Product × Rate) ÷ 12 = (4,30,000 × 7/100) ÷ 12 = ₹2,508 (approx.)
Example: Shahnaz withdrew: ₹16,000 (Apr 1), ₹15,000 (Jun 30), ₹10,000 (Oct 31), ₹14,000 (Dec 31), ₹11,000 (Mar 1). Rate 7% p.a.
| Date | Amount (₹) | Months till Mar 31 | Product (₹) |
|---|---|---|---|
| Apr 1 | 16,000 | 12 | 1,92,000 |
| Jun 30 | 15,000 | 9 | 1,35,000 |
| Oct 31 | 10,000 | 5 | 50,000 |
| Dec 31 | 14,000 | 3 | 42,000 |
| Mar 1 | 11,000 | 1 | 11,000 |
| Total Product | 4,30,000 | ||
Method 3: Fixed Amount Monthly/Quarterly (Using Average Period)
Formula: Interest = Total Drawings × Rate × (Avg. Period/12).
| When Drawn | Average Period (Months) | For Quarterly Drawings | Example Calculation |
|---|---|---|---|
| Beginning of every month | 6.5 | Beginning: 7.5 | ₹1,000 p.m. = ₹12,000 p.a. Interest @ 12% = ₹12,000 × (12/100) × (6.5/12) = ₹780 |
| Middle of every month | 6.0 | Middle: 6.0 | ₹1,000 p.m. = ₹12,000 p.a. Interest @ 12% = ₹12,000 × (12/100) × (6/12) = ₹720 |
| End of every month | 5.5 | End: 4.5 | ₹1,000 p.m. = ₹12,000 p.a. Interest @ 12% = ₹12,000 × (12/100) × (5.5/12) = ₹660 |
Method 4: No Date Given (Assume evenly throughout year)
Example: A partner's total drawings during the year = ₹60,000. Rate of interest = 8% p.a.
Assume drawings made in middle of year, so average period = 6 months.
Interest = ₹60,000 × (8/100) × (6/12) = ₹2,400
Example: A partner's total drawings during the year = ₹60,000. Rate of interest = 8% p.a.
Assume drawings made in middle of year, so average period = 6 months.
Interest = ₹60,000 × (8/100) × (6/12) = ₹2,400
Guarantee of Profit to a Partner
Sometimes a new partner (or even an existing one) is promised a minimum amount of profit. This is a guarantee. If the partner's actual share of profit is less than this guaranteed amount, the difference (deficiency) is paid by the other partners who gave the guarantee.
Example 1 (Guarantee by all old partners): Mohit and Rohan (profit share 2:1) admit Rahul with 1/4 share, guaranteeing him ₹50,000 minimum profit. Firm's profit = ₹1,60,000.
- Rahul's actual share (1/4 of ₹1,60,000) = ₹40,000.
- Deficiency = ₹50,000 - ₹40,000 = ₹10,000.
- This ₹10,000 is borne by Mohit & Rohan in their profit-sharing ratio (2:1).
- Mohit pays: (2/3 of ₹10,000)= ₹6,667; Rohan pays: ₹3,333.
- Final Shares: Mohit= ₹80,000 - ₹6,667 = ₹73,333; Rohan= ₹40,000 - ₹3,333 = ₹36,667; Rahul= ₹40,000 + ₹10,000 = ₹50,000.
Example 2 (Guarantee by one partner only): In the above case, if only Rohan had given the guarantee to Rahul, then Rohan alone would bear the entire ₹10,000 deficiency.
Final Shares: Mohit= ₹80,000 (no change), Rohan= ₹40,000 - ₹10,000 = ₹30,000, Rahul= ₹40,000 + ₹10,000 = ₹50,000.
Final Shares: Mohit= ₹80,000 (no change), Rohan= ₹40,000 - ₹10,000 = ₹30,000, Rahul= ₹40,000 + ₹10,000 = ₹50,000.
Past Adjustments
Sometimes, after the accounts are closed and profits shared, we find mistakes. For example, interest on capital was forgotten, or salary was not given. These are called past adjustments. We correct them without changing the old accounts.
How to Rectify? (Through a single adjustment entry)
Example: Rameez (Cap. ₹50,000) and Zaheer (Cap. ₹1,00,000) are equal partners. They forgot to provide 6% interest on capital before sharing profit of ₹90,000.
Example: Rameez (Cap. ₹50,000) and Zaheer (Cap. ₹1,00,000) are equal partners. They forgot to provide 6% interest on capital before sharing profit of ₹90,000.
- Interest due: Rameez = ₹3,000; Zaheer = ₹6,000. Total = ₹9,000.
- Profit already shared: ₹45,000 each (equal).
- Statement of Net Effect:
Correct approach from PDF:Details Rameez (₹) Zaheer (₹) Should have got (Capital+Interest) 53,000 1,06,000 Actually got (Share of Profit) 45,000 45,000 Difference (Net Effect) Short by 8,000 Short by 61,000 Wait, this is wrong. Let's calculate properly. - Interest due: Rameez ₹3,000 (Cr), Zaheer ₹6,000 (Cr).
- Profit shared (₹90,000 ÷ 2): ₹45,000 each (Cr).
- If interest was given, profit would be ₹81,000 (₹90,000 - ₹9,000). Then share: ₹40,500 each.
- So Rameez should have: ₹3,000 + ₹40,500 = ₹43,500. But got ₹45,000. Excess ₹1,500.
- Zaheer should have: ₹6,000 + ₹40,500 = ₹46,500. But got ₹45,000. Short ₹1,500.
- Adjustment Entry:
Rameez's Capital A/c Dr. 1,500
To Zaheer's Capital A/c 1,500
Try for Exam! (8 Marks)
Question: Amit, Babu, and Charu are partners sharing profits in 3:2:1. Their fixed capitals on April 1, 2019, were: ₹50,000, ₹40,000, and ₹30,000. The Partnership Deed provides for:
Answer Hints:
Question: Amit, Babu, and Charu are partners sharing profits in 3:2:1. Their fixed capitals on April 1, 2019, were: ₹50,000, ₹40,000, and ₹30,000. The Partnership Deed provides for:
- Interest on Capital @ 6% p.a.
- Amit's salary ₹1,000 p.m.
- Babu's commission ₹5,000.
Answer Hints:
- Start with Net Profit: ₹35,660 (Cr.)
- Debit Side (Appropriations): Add Amit's Salary (₹12,000), Babu's Commission (₹5,000), Interest on Capital (Amit: ₹3,000, Babu: ₹2,400, Charu: ₹1,800).
- Credit Side: Add Interest on Drawings (Total ₹540).
- Calculate the Divisible Profit: [35,660 + 540] - [12,000+5,000+7,200] = ₹12,000.
- Distribute ₹12,000 in 3:2:1 ratio: Amit ₹6,000, Babu ₹4,000, Charu ₹2,000.
Malayalam Section
പ്രധാന പാഠഭാഗങ്ങൾ:
പങ്കാളിത്തത്തിന്റെ നിർവചനവും സവിശേഷതകളും, പങ്കാളിത്ത കരാർ, പങ്കാളിത്ത നിയമം 1932-ലെ വ്യവസ്ഥകൾ, പങ്കാളികളുടെ മൂലധന അക്കൗണ്ടുകൾ (Fixed vs Fluctuating), ലാഭ-നഷ്ട വിനിയോജന അക്കൗണ്ട്, മൂലധനത്തിനും ഡ്രോയിംഗിനുമുള്ള പലിശ, ഒരു പങ്കാളിക്കുള്ള ലാഭ ഉറപ്പ്, പഴയ തിരുത്തലുകൾ (Past Adjustments).
Nature of Partnership (പങ്കാളിത്തത്തിന്റെ സ്വഭാവം)
ഒരു കച്ചവടം വളരണമെങ്കിൽ ഒരാൾക്ക് മാത്രം പണവും കഴിവും മതിയാവില്ല. രണ്ടോ അതിലധികമോ ആളുകൾ ഒത്തുചേർന്ന് ഒരു ബിസിനസ് നടത്തി ലാഭനഷ്ടങ്ങൾ പങ്കുവെക്കുന്നതിനെ പങ്കാളിത്തം എന്നു പറയുന്നു. ഒറ്റ ഉടമയ്ക്കുള്ള പണക്കുറവ്, കഴിവിന്റെ പരിധി, കൂടുതൽ സാധ്യത എന്നീ പ്രശ്നങ്ങൾ ഇത് തീരുമാനിക്കുന്നു.
ഉദാഹരണം 1: അമിത്തിന് ₹50,000 ഉണ്ട്, പക്ഷേ വിൽപ്പന നടത്താൻ കഴിവില്ല. സുനിലിന് വിറ്റുതീർക്കാൻ നല്ല കഴിവുണ്ട്, പക്ഷേ പണമില്ല. അവർ ഒരു മൊബൈൽ ഷോപ്പ് ഒരുമിച്ച് തുടങ്ങാൻ തീരുമാനിക്കുന്നു. അമിത്ത് പണം നോക്കും, സുനിൽ കസ്റ്റമർമാരെ നോക്കും. ലാഭം തുല്യമായി പങ്കുവെക്കാൻ ഉടമ്പടി. ഇതൊരു പങ്കാളിത്തമാണ്.
പങ്കാളിത്തത്തിന്റെ അവശ്യ സവിശേഷതകൾ (മനഃപാഠമാക്കുക):
- രണ്ടോ അതിലധികമോ ആളുകൾ: കുറഞ്ഞത് 2, കൂടിയത് 50 (കമ്പനീസ് ആക്ട് പ്രകാരം 100 ആണെങ്കിലും സർക്കാർ 50 ആയി പരിമിതപ്പെടുത്തുന്നു).
- ഉടമ്പടി: ഇത് ഒരു ഉടമ്പടിയിൽ നിന്നാണ് ഉണ്ടാകുന്നത് (എഴുതിയോ വാമൊഴിയോ).
- കച്ചവടം: ഉടമ്പടി ചട്ടം പോലെയുള്ള ഒരു ബിസിനസ് നടത്താനായിരിക്കണം.
- ലാഭം പങ്കുവെയ്ക്കൽ: പ്രധാന ലക്ഷ്യം ബിസിനസിന്റെ ലാഭങ്ങളും (നഷ്ടങ്ങളും) പങ്കുവെയ്ക്കുക എന്നതാണ്.
- പരസ്പര ഏജൻസി: ഓരോ പങ്കാളിയും ഫാമിന്റെ ഏജന്റാണ്. ബിസിനസ് എല്ലാവരും അല്ലെങ്കിൽ ആരെങ്കിലും ഒരാൾ എല്ലാവർക്കുവേണ്ടിയും നടത്താം.
- അപരിമിത ബാധ്യത: ഓരോ പങ്കാളിയുടെയും സ്വകാര്യ സ്വത്ത് ഫാമിന്റെ കടം തീർക്കാൻ ഉപയോഗിക്കാം.
Partnership Deed (പങ്കാളിത്ത കരാർ)
പങ്കാളിത്ത കരാർ എന്നത് പങ്കാളികൾ തമ്മിൽ തീർച്ചയാക്കിയ എല്ലാ നിയമങ്ങളും അടങ്ങിയ രേഖാമൂലമുള്ള ഉടമ്പടിയാണ്. ഇത് പങ്കാളിത്തത്തിനുള്ള ഒരു നിയമ ഗ്രന്ഥം പോലെയാണ്. ഇത് എഴുതിയ രൂപത്തിൽ ഉണ്ടായിരിക്കുന്നത് ഭാവിയിലെ വഴക്കുകൾ ഒഴിവാക്കും.
പങ്കാളിത്ത കരാറിൽ ഉൾപ്പെടുന്നവ: ഫാമിന്റെയും പങ്കാളികളുടെയും പേരുകൾ, കച്ചവടത്തിന്റെ സ്വഭാവം, ഓരോരുത്തരും മുടക്കിയ മൂലധനം, ലാഭവിഹിത അനുപാതം, മൂലധനത്തിനും ഡ്രോയിംഗിനുമുള്ള പലിശ, പങ്കാളിയുടെ ശമ്പളം / കമ്മീഷൻ, പുതിയ പങ്കാളിയെ പ്രവേശിപ്പിക്കാനുള്ള നിയമങ്ങൾ, വിരമിക്കൽ അല്ലെങ്കിൽ മരണം കൈകാര്യം ചെയ്യൽ, തർക്കങ്ങൾ പരിഹരിക്കുന്ന രീതി.
Important Exam Questions
- Define Partnership. State its essential characteristics.
- What is a Partnership Deed? List its contents.
- State the provisions of the Indian Partnership Act, 1932 applicable in the absence of a Partnership Deed.
- Differentiate between Fixed and Fluctuating Capital methods.
- What is a Profit and Loss Appropriation Account? Why is it prepared?
- How is Interest on Capital calculated? Explain with an example when capital is introduced or withdrawn during the year.
- Explain the different methods of calculating Interest on Drawings.
- What is meant by 'Guarantee of Profit' to a partner? How is the deficiency borne by other partners?
- What are 'Past Adjustments'? How are they recorded in the books?
- Prepare Profit and Loss Appropriation Account and Partners' Capital/Current Accounts from given information (Practice numericals from the PDF).
