Accounts Class 12th (Ch.1 Accounting for Partnership Firms and Fundamentals) Part 1

(Ch.1 Accounting for Partnership Firms and Fundamentals) Part 1

Meaning of Partnership = Partnership is an associations of persons who have agreed to run the lawful business and share its profit or loss.

Partners = The persons who entered into the partnership firm with one another individually are called partners.

Firm = The associations of the partners is called firms.

Firms Name = The name under which the partnership business is carried is called firms name.

                                   Nature of Partnership Firm

1.As per accounting view of point = A partnership firm is treated a separate business entity distinct from its partner.

For Example:- a) when partner introduce money in the business that is known as partner's capital.

b) when partner withdraw money from business that is known as partner's drawing.

2.As per legal view of point = A partnership firm is not a separate legal entity.

               In the other words, it has no existence separate from its partners.

For Example:- It means that in case of bankruptcy of the partnership firm the personal property of the partners i also liable to meet the firms debt.

Definitions of Partnership = According to section 4 of the Indian Partnership Act, 1932 

"Partnership is the relation between persons who have agreed to share the profit of the business carried by all or any of them active for all"

5 Essential characteristics of partnership

1. Two or more than two persons - There must be at least two persons two perform a partnership ans such persons must be ability to contract.

According to Indian Contract Act 1872 all the persons except the following are competent to contract.

a) A minor

b) A person of unsound mind.

c) A person disqualified by any law.

Special Note - The partnership act does not specify the maximum number of limit of partner. According to section 464 of the companies act 2013 restricts the maximum limit of partners is 50.

2.Agreement - Partnership is the result of an agreement. It comes into existence by an agreement not by the operation of law.

3.Share the Profit - The agreement b/w the partners must be to share the profit of the business.

       It is not mandatory to share of loss of business among all. It may be a provision in the partnership deed that particular partner shall be a or not the losses of the business.

4.Existence of Business and Profit Motive - Partnership can be formed for carrying on some lawful business with the intention of earning money.

Business include trade, vocation and profession 

5.Principal - Agent Relationship = Each partnership is a agent as well as principal (Owner) of the partnership firm.

An agent is a person who can bind the other partner by his activities.

An owner or principal is a person who can bounded by the acts of other partners.

Partnership Deed =Partnership Deed is a return agreement containing the terms and conditions related to partnership. It is also called the "Articles of Partnership".

*Absence of Partnership Deed / Oral Agreement = In the absence of partnership  deed or oral agreement the provision of the Indian Partnership Act 1932 are applicable.

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