Kumar Gaurav commenced business with 10,000, of which he borrowed 34,000 from his wife as loan at
5% interest
Answers
Answer:
Explanation:
Meaning of Partnership
Partnership is a contractual relationship between two or more persons who agree to pool talent
and money for a joint business venturewith a view to profit, each incurring liability for losses
and the right to share in the profits.It is the name of legal relationship between or among persons
who have entered into a contract.
The persons who own the partnership business are individually called ‘partners’ and collectively
they are called as ‘firm’ or ‘partnership firm’. The name under which partnership business is
carried on is called ‘Firm Name’.
Thus partnership is a business entity in which two or more co-owners contribute resources, share
in profits and losses, and are individually liable for the entity's actions.
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’.
Partnership is thus invisibilitywhich binds the partners together and firm is the visible form of
those partners who are thus bound together.
Essential Characteristics of Partnership
A partnership firm has no separate legal entity, apart from the partners constituting it. Thus, the
essential features of partnership are:
1. Existence of business: Partnership is formed to carry on some type of lawful business.
Business here means any activity leading to earn profit.If persons join together and
Learning Objectives
After studying this unit, the students will be able to:
1. Understand the concept of Partnership and Partnership Deed,
2. Apply the provisions of Partnership Act, 1932 in the absence of partnership deed,
3. Make computation of Interest on capital and Drawings,
4. Prepare Partners’ Fixed and fluctuating capital Accounts,
5. Distribute profit among partners and prepare Profit and Loss Appropriation Account,
6. Explain the valuation of Goodwill,
7. Explain the treatment of Joint Life Policy,
8. Make the accounting treatment of past adjustment, and
9. Explain the meaning of certain keywords.
SESSION 1: INTRODUCTION TO PARTNERSHIP
agreed to do charitable work or for formation of any club for entertainment would not be
treated as partnership due to absence of the business.
2. Association of persons:Partnership is an association of at least two or more personsand
all such persons must be competent to contract.The maximum number of persons/partners
in any association/partnership may be upto such number as may be prescribed but not
exceeding one hundred. This restriction will not apply to an association or partnership
constituted by professionals like lawyers, chartered accountants, company secretaries,
etc. and joint family business which are governed by their special laws.
3. Contractual relationship:There should be a contractual relationship between the
persons forming partnership. Persons competent to contract voluntarily enter into an
agreement either written or oral to becomethe partners.They have to mutually agree and
jointly decide to go for any business activity as per agreed terms and conditions.
4. Profit and Loss Sharing:Business is carried on to share profit and not to incur losses.
The profits generated by the firm are distributed among the partners on an agreeable
proportion. Loss if any has also to be borne by them on that agreed ratio.
5. Agency: Partnership contract is based on principle of agency. The business is carried on
by all or any one of them acting on behalf of all other partners.While dealing with firm’s
transactions, each partner is entitled to represent the firm and other partners. In this way,
a partner is an agent of the firm and of the other partners.
6. Utmost good faith: The partners should have utmost good faith in each other. They
should be fair and honest. They should present true accounts and must disclose true
information to one another.
7. Unlimited liability:Every partner has an unlimited liability in respect of debts of the firm
like sole proprietorship. If the assets of the firm are insufficient to meet the Firms’
obligations, then private property of the partners can be used to meet those obligations.
8. Restriction on transfer of ownership: A partner cannot transfer his share in business to
any outsider without the consent of other partners because the partnership agreement is
based on contract among individuals.
Partnership Deed
A partnership is formed by an agreement. This agreement may be in writing or oral. Though the
Journal Entry of Kumar Gaurav
Explanation:-
This question apply major three rule of journal:-
1. Debit what comes in, credit what goes out.
2. Debit the reciever, credit the giver.
3. Debit all the expenses , credit all the gains.
Cash A/c Dr. 1,00,000
To Capital A/c 66,000
To Gaurav's wife loan A/c 34,000
Interest on Loan A/c Dr. 1,700
To Gaurav's wife loan A/c 1,700
Note: Even though the loan is given by Kumar Gaurav's wife, it will still be treated as a loan instead of Kumar Gaurav's capital.
Interest on loan will be given @5% of loan amount i.e 5% of 34,000 =1,700