PPT - Accounting for Partnerships | Accountancy Class 12 - Commerce PDF Download

 Page 1


Accounting for 
Partnership: Basic 
Concepts
Page 2


Accounting for 
Partnership: Basic 
Concepts
Overview
From Sole Proprietorship to 
Partnership
As a business expands, it requires 
more capital and people to manage 
operations and share risks, leading to 
the adoption of partnership as an 
organisational form.
Partnership Peculiarities
Partnership accounting has unique 
aspects, especially regarding profit 
distribution, interest calculations, 
and capital account maintenance.
Legal Framework
When specific agreements between partners are absent, the Indian Partnership 
Act 1932 provisions apply to govern the partnership operations.
This presentation covers basic aspects of partnership accounting such as profit 
distribution and capital account maintenance. Subsequent chapters will address 
admission of partners, retirement, death, and dissolution of partnerships.
Page 3


Accounting for 
Partnership: Basic 
Concepts
Overview
From Sole Proprietorship to 
Partnership
As a business expands, it requires 
more capital and people to manage 
operations and share risks, leading to 
the adoption of partnership as an 
organisational form.
Partnership Peculiarities
Partnership accounting has unique 
aspects, especially regarding profit 
distribution, interest calculations, 
and capital account maintenance.
Legal Framework
When specific agreements between partners are absent, the Indian Partnership 
Act 1932 provisions apply to govern the partnership operations.
This presentation covers basic aspects of partnership accounting such as profit 
distribution and capital account maintenance. Subsequent chapters will address 
admission of partners, retirement, death, and dissolution of partnerships.
Nature of Partnership
Definition
Section 4 of the 
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'.
Partners and Firm
Individuals in a 
partnership are 
called 'partners' 
while collectively 
they are referred to 
as a 'firm'. The 
business operates 
under a name 
known as the 'firm's 
name'.
Legal Status
A partnership firm 
has no separate 
legal entity apart 
from the partners 
constituting it, 
unlike a company 
which has its own 
distinct legal 
identity.
Page 4


Accounting for 
Partnership: Basic 
Concepts
Overview
From Sole Proprietorship to 
Partnership
As a business expands, it requires 
more capital and people to manage 
operations and share risks, leading to 
the adoption of partnership as an 
organisational form.
Partnership Peculiarities
Partnership accounting has unique 
aspects, especially regarding profit 
distribution, interest calculations, 
and capital account maintenance.
Legal Framework
When specific agreements between partners are absent, the Indian Partnership 
Act 1932 provisions apply to govern the partnership operations.
This presentation covers basic aspects of partnership accounting such as profit 
distribution and capital account maintenance. Subsequent chapters will address 
admission of partners, retirement, death, and dissolution of partnerships.
Nature of Partnership
Definition
Section 4 of the 
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'.
Partners and Firm
Individuals in a 
partnership are 
called 'partners' 
while collectively 
they are referred to 
as a 'firm'. The 
business operates 
under a name 
known as the 'firm's 
name'.
Legal Status
A partnership firm 
has no separate 
legal entity apart 
from the partners 
constituting it, 
unlike a company 
which has its own 
distinct legal 
identity.
Essential Features of a Partnership
1
Two or More Persons
A partnership requires at least two persons 
joining for a common goal. The maximum 
number of partners cannot exceed 50, as 
prescribed by the Central Government under 
Section 464 of the Companies Act 2013.
2
Agreement
Partnership results from an agreement 
between partners to do business and share 
profits and losses. While oral agreements are 
valid, written agreements are preferred to 
avoid disputes.
3
Business Purpose
The agreement must be to carry on business. 
Mere co-ownership of property does not 
constitute a partnership. The intention to 
conduct business for profit is essential.
4
Mutual Agency and Unlimited Liability
Each partner acts as both principal and agent 
for others, creating mutual agency. Partners 
have joint, several, and unlimited liability for 
the firm's acts, extending to their personal 
assets.
Page 5


Accounting for 
Partnership: Basic 
Concepts
Overview
From Sole Proprietorship to 
Partnership
As a business expands, it requires 
more capital and people to manage 
operations and share risks, leading to 
the adoption of partnership as an 
organisational form.
Partnership Peculiarities
Partnership accounting has unique 
aspects, especially regarding profit 
distribution, interest calculations, 
and capital account maintenance.
Legal Framework
When specific agreements between partners are absent, the Indian Partnership 
Act 1932 provisions apply to govern the partnership operations.
This presentation covers basic aspects of partnership accounting such as profit 
distribution and capital account maintenance. Subsequent chapters will address 
admission of partners, retirement, death, and dissolution of partnerships.
Nature of Partnership
Definition
Section 4 of the 
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'.
Partners and Firm
Individuals in a 
partnership are 
called 'partners' 
while collectively 
they are referred to 
as a 'firm'. The 
business operates 
under a name 
known as the 'firm's 
name'.
Legal Status
A partnership firm 
has no separate 
legal entity apart 
from the partners 
constituting it, 
unlike a company 
which has its own 
distinct legal 
identity.
Essential Features of a Partnership
1
Two or More Persons
A partnership requires at least two persons 
joining for a common goal. The maximum 
number of partners cannot exceed 50, as 
prescribed by the Central Government under 
Section 464 of the Companies Act 2013.
2
Agreement
Partnership results from an agreement 
between partners to do business and share 
profits and losses. While oral agreements are 
valid, written agreements are preferred to 
avoid disputes.
3
Business Purpose
The agreement must be to carry on business. 
Mere co-ownership of property does not 
constitute a partnership. The intention to 
conduct business for profit is essential.
4
Mutual Agency and Unlimited Liability
Each partner acts as both principal and agent 
for others, creating mutual agency. Partners 
have joint, several, and unlimited liability for 
the firm's acts, extending to their personal 
assets.
Partnership Deed
Written Agreement
While the Partnership Act doesn't 
require written agreements, a 
'Partnership Deed' document 
contains all terms of the 
partnership agreement when in 
writing.
Contents
The deed typically includes 
business objectives, capital 
contributions, profit-sharing ratios, 
and entitlements to interest on 
capital or loans. All clauses can be 
altered with unanimous partner 
consent.
Legal Formalities
The deed should be properly 
drafted according to the 'Stamp 
Act' provisions and preferably 
registered with the Registrar of 
Firms to ensure legal validity and 
protection.