Class 12 Accountancy - Chapter Accounting for Partnership : Basic Concepts NCERT Solutions | What is meant by partnership? Explain it
What is meant by partnership? Explain its chief characteristics? Explain.
Partnership is 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”.
The essential features of partnership are :
1. Two or More Persons: In order to form partnership, there should be at least two persons coming together for a common goal. In other words,the minimum number of partners in a firm can be two. There is however,a limit on their maximum number. By virtue of Section 464 of the Companies Act 2013, the Central Government is empowered to prescribe maximum number of partners in a firm but the number of partners cannot be more than 100. The Central government has prescribed the maximum number of partners in a firm to be 50.
2. Agreement: Partnership is the result of an agreement between two or more persons to do business and share its profits and losses. The agreement becomes the basis of relationship between the partners. It is not necessary that such agreement is in written form. An oral agreement is equally valid. But in order to avoid disputes, it is preferred that the partners have a written agreement.
3. Business: The agreement should be to carry on some business. Mere co-ownership of a property does not amount to partnership. For example, if Rohit and Sachin jointly purchase a plot of land, they become the joint owners of the property and not the partners. But if they are in the business of purchase and sale of land for the purpose of making profit, they will be called partners.
4. Mutual Agency: The business of a partnership concern may be carried on by all the partners or any of them acting for all. This statement has two important implications. First, every partner is entitled to participate in the conduct of the affairs of its business. Second, that there exists a relationship of mutual agency between all the partners. Each partner carrying on the business is the principal as well as the agent for all the other partners. He can bind other partners by his acts and also is bound by the acts of other partners with regard to business of the firm. Relationship of mutual agency is so important that one can say that there would be no partnership, if the element of mutual agency is absent.
5. Sharing of Profit: Another important element of partnership is that, the agreement between partners must be to share profits and losses of a business. Though the definition contained in the Partnership Act describes partnership as a relation between people who agree to share the profits of a business, the sharing of loss is implied.
More Questions From Class 12 Accountancy - Chapter Accounting for Partnership : Basic Concepts
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If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on total amount withdrawn will be calculated?
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List the items which may be debited or credited in capital accounts of the partners when:
(i) Capitals are fixed.
(ii) Capital are fluctuating. - Q:-
Why is Profit and Loss Adjustment Account prepared? Explain.
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Why it is considered desirable to make the partnership agreement in writing.
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Give two circumstances under which the fixed capitals of partners may change.
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In the absence of Partnership deed, specify the rules relating to the following :
(i) Sharing of profits and losses.
(ii) Interest on partner’s capital.
(iii) Interest on Partner’s drawings.
(iv) Interest on Partner’s loan
(v) Salary to a partner. - Q:-
Define Partnership Deed.
- Q:-
Priya and Kajal are partners in a firm, sharing profits and losses in the ratio of 5:3. The balance in their fixed capital accounts, on April 1, 2016 were: Priya, Rs. 6,00,000 and Kajal, Rs. 8,00,000. The profit of the firm for the year ended March 31, 2017 was Rs, 1,26,000. Calculate their shares of profits: (a) when there is no agreement in respect of interest on capital, and (b) when there is an agreement that the interest on capital will be allowed @ 12% p.a.
- Q:-
Reena and Raman are partners with capitals of Rs. 3,00,000 and Rs. 1,00,000 respectively. The profit for the year ended March 31, 2017 was Rs. 1,80,000, before paying rent for her personal building to be used as godown for firm to Reena payable at Rs. 5000 per month. Interest on capital is to be allowed at 6% p.a. Raman was entitled to a salary of Rs. 30,000 p.a. The drawings of partners were Rs. 30,000 and 20,000. The interest on drawings to be charged to Reena was Rs. 1,000 and to Raman, Rs. 500.
Assuming that Reena and Raman are equal partners. State their share of profit after necessary appropriations.
- Q:-
Mohan and Shyam are partners in a firm. State whether the claim is valid if the partnership agreement is silent in the following matters:
(i) Mohan is an active partner. He wants a salary of Rs. 10,000 per year;
(ii) Shyam had advanced a loan to the firm. He claims interest @ 10% per annum;
(iii) Mohan has contributed Rs. 20,000 and Shyam Rs. 50,000 as capital. Mohan wants equal share in profits.
(iv) Shyam wants interest on capital to be credited @ 6% per annum.
Popular Questions of Class 12 Accountancy
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- Q:-
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Distinguish between firm’s debts and partner’s private debts.
- Q:-
On what occasions sacrificing ratio is used?
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