Partnership Accounts

Partnership Deed (also known as Partnership Agreement) is a written document that contains the terms and conditions of partnership agreed upon by all partners. Definition:
A partnership deed is a legal document that defines the rights, duties, obligations, and responsibilities of each partner in a partnership firm. It serves as the foundation for the functioning of the partnership business. Contents of Partnership Deed:

• Name of the Firm: The name under which the business will be carried on.
• Nature of Business: The type of business activities to be undertaken.
• Names and Addresses of Partners: Complete details of all partners.
• Capital Contribution: Amount of capital to be contributed by each partner.
• Profit and Loss Sharing Ratio: The ratio in which profits and losses will be shared among partners.
• Interest on Capital: Rate of interest payable on partners' capital (if any).
• Interest on Drawings: Rate of interest to be charged on drawings made by partners (if any).
• Salary or Commission to Partners: Remuneration payable to partners for their services.
• Interest on Loan: Rate of interest payable on loans advanced by partners to the firm.
• Duties and Powers of Partners: Rights, duties, and powers of each partner.
• Admission and Retirement: Rules for admission of new partners and retirement of existing partners.
• Accounting and Audit: Provisions regarding maintenance of accounts and audit.
• Dissolution: Terms and conditions for dissolution of the firm.

Importance of Partnership Deed:

• Avoids Disputes: Clearly defines rights and duties, preventing misunderstandings.
• Legal Validity: Serves as evidence in case of legal disputes.
• Flexibility: Partners can include terms as per their mutual agreement, unlike the rigid provisions of the Indian Partnership Act.
• Smooth Functioning: Ensures smooth operation of business with clearly defined roles.
• Third Party Confidence: Builds trust among banks, creditors, and other stakeholders.

Types of Partnership Deed:

• Oral Partnership Deed: Based on verbal agreement (not recommended as it may lead to disputes).
• Written Partnership Deed: Documented agreement signed by all partners (recommended).
• Registered Partnership Deed: Written deed registered with the Registrar of Firms (provides additional legal benefits).

Note: In the absence of a partnership deed, the provisions of the Indian Partnership Act, 1932 become applicable, which may not always be favorable to all partners.

In the absence of a partnership deed (Partnership Agreement), the provisions of the Indian Partnership Act, 1932 are applicable. The following provisions apply: (i) Profit - Loss distribution
As per the Indian Partnership Act, 1932, in the absence of any agreement:

• Profits and losses are to be shared equally among all partners, regardless of their capital contribution or involvement in the business.
• This applies even if partners have contributed different amounts of capital or have different roles in the firm.

(ii) Remuneration (of partners)

• No partner is entitled to any salary, commission, or other remuneration for taking part in the conduct of the business.
• Partners are only entitled to their share of profits as per the profit-sharing ratio.
• Even if a partner works extra hours or manages the entire business, they cannot claim any additional remuneration.

(iii) Interest on loan given by a partner

• If a partner advances any loan to the firm beyond their capital contribution, they are entitled to interest on such loan.
• The rate of interest is 6% per annum.
• This interest is to be paid even if the firm incurs losses.
• Note: No interest is allowed on partners' capital in the absence of a partnership deed.

(iv) Interest on drawings

• In the absence of a partnership deed, no interest is charged on drawings made by partners.
• Partners can withdraw any amount from the firm without any interest liability.
• However, the partnership deed can specify a rate of interest on drawings if partners agree.

(i) Increase in value of Building
Increase in asset is credited to Revaluation Account.
Building A/c \hspace{1.5cm} Dr. \hspace{0.5cm} ₹ 40,000
\hspace*{2.5cm} To Revaluation A/c \hspace{0.5cm} ₹ 40,000
(Being increase in value of building on revaluation)
(ii) Decrease in value of Stock
Decrease in asset is debited to Revaluation Account.
Revaluation A/c \hspace{0.5cm} Dr. \hspace{0.5cm} ₹ 10,000
\hspace*{2.5cm} To Stock A/c \hspace{1.5cm} ₹ 10,000
(Being decrease in value of stock on revaluation)
(iii) Reduction in Creditors
Decrease in liability is credited to Revaluation Account.
Creditors A/c \hspace{1.2cm} Dr. \hspace{0.5cm} ₹ 5,000
\hspace*{2.5cm} To Revaluation A/c \hspace{0.5cm} ₹ 5,000
(Being reduction in creditors on revaluation)