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By going through these Maharashtra State Board Book Keeping & Accountancy Notes 12th Chapter 1 Introduction to Partnership and Partnership Final Accounts students can recall all the concepts quickly.

Maharashtra State Board 12th Accounts Notes Chapter 1 Introduction to Partnership and Partnership Final Accounts

Introduction, Meaning and Definition of Partnership-

Introduction : When development of single ownership firm takes place or when expansion of the business is planned then naturally, third party help is mandatory. The partnership firm is emerged from capital and managerial limitations of single ownership firms. Hence, when two or more persons, competent to enter into a contract, make an agreement, contribute required capital, undertake certain lawful business for earning profit and sharing the same in agreed proportion, then such union is termed as ‘Partnership’.
The persons who have entered into partnership are individually known as ‘Partner’ and collectively known as a ‘Firm’.

Meaning : Partnership is a business organization, where more than one person come together, make an agreement, contribute capital to carry on a lawful business with the primary objective of earning profit.

Definition : Section 4 of the Indian Partnership Act. 1932 defines a partnership as, “The 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. ”

Prof. Haney defines partnership as, “The relation existing between persons competent to make contract who agree to carry on a lawful business in common with a view to earn private gain. ”

Features of partnership firm : The main features of partnership firm are stated below :

(1) Agreement: Foundation of partnership is agreement. Agreement may be either in oral or in written form. Written form of agreement is advisable because it can be used as a proof in the court of law, in case of any future disputes. The written agreement is termed as partnership deed.

(2) Number of partners : Minimum two persons are required to form the partnership firm. According to the Companies Act 2013, maximum number of partners is fifty.

(3) Lawful business : The business undertaken by partnership, must be lawful. It cannot undertake illegal activities or business not permitted by law.

(4) Sharing of profit and losses : Main objective of partnership is to earn maximum profits, and distribute it among the partners in agreed proportion. Profit or loss is to be shared equally among the partners if the agreement is silent on ratio.

(5) Unlimited liability : The liability of all partners except minor partner is unlimited. The creditors can claim and recover their dues from the private property of partners, if business property is not sufficient to settle their claims. If any partner is declared insolvent, then his liability is to be borne by the solvent partner.

(6) Registration : According to the Indian Partnership Act 1932, registration of partnership firm
is optional. However, registration of partnership firm is made compulsory only in the state of Maharashtra. Registration means entering the name of partnership firm in the register maintained by the Registrar after the completion of required formalities.

(7) Joint ownership and management : Each partner is joint owner of the property of the firm. So any partner of the firm cannot use property of firm for personal use. Each partner has right to participate in the management of a firm, so all the partners are jointly responsible for all the activities of the firm.

(8) Principal and Agent : Partners carrying on business, works as a Principal and Agent. A partner
act as a principal of the firm for business concerned persons or outsiders and act as a partner with other partners of a firm.

(9) Dissolution : Dissolution of firm means closure of business of the firm. Dissolution of partnership firm is simple and easy. Any one of the partners can take active part to dissolve the firm by giving fourteen days notice. Unless there is an agreement, partnership gets dissolved on death, retirement or insolvency of a partner.

Partnership Deed : A partnership is contractual relationship. Agreement may be oral or written. An agreement which is written and signed by all the partners is called Partnership Deed. It contains terms and conditions of partnership and also rules relating to internal management of the firm.

The usual contents of a partnership deed are : (1) Name and address, Telephone nos., e-mail address of the firm and its main business. (2) Name, addresses and other information of all partners and duration of the partnership. (3) The amount of capital contributed or to be contributed by each of the partners. (4) The profit and loss sharing ratio of the partners. (5) Rights, duties and liabilities of all partners. (6) Provisions for admission, retirement and death of partner. (7) Rate of interest on capital, loan and drawings, if any. (8) Salaries, commission, etc. payable to partners or any partner. (9) Procedure for dissolution of the firm and settlement of accounts after dissolution.

(10) The methods of settlement of disputes among the partners. (11) Other terms and conditions relating to the conduct of business which are agreed by all the partners.

Importance of Partnership Deed : As partnership deed contains all the terms and conditions of partnership and haying bases of mutual relationship among the partners, it is known as a very important document. With the help of partnership deed, rights, duties and liabilities of all partners and firm can be regulated. To avoid any disputes in future, Partnership Deed duly signed by all the partners and registered under the Indian Partnership Act 1932 is always advisable.

The Indian Partnership Act 1932-

At the time of commencement of partnership, partnership deed is prepared which contains all the required terms and conditions of Partnership. However, if there is no agreement, written or oral, and if partnership deed is silent about any issue among the partners, provisions of the Indian Partnership Act 1932, section 12 and 17 are made applicable, which are as follows :

(1) Distribution of Profits : In the absence of partnership deed or if partnership deed is silent about profit and loss ratio, profits or losses are to be shared equally among the partners.

(2) Interest on Drawings : As per the provisions of the Indian Partnership Act 1932, no interest is to be charged on drawings made by the partners. If provisions are made in the partnership deed in respect to payment of interest on drawings, then interest on drawings is charged. If the date of withdrawal of money is not given, then interest on drawings is charged for average period of 6 months.

(3) Interest on Partner’s Loan : As per the provisions of the Indian Partnership Act, 1932, if any partner has advanced loan to the firm over and above his capital contribution, such a loan is to carry interest @ 6 % per annum. However, if any provision is made In the partnership deed In respect to payment of interest on loan given by a partner to partnership, then interest is paid on such loan at the specified rate.

(4) Interest on Capital : As per the provisions of the Indian Partnership Act, 1932 no partner is entitled to receive any interest on his capital contribution. However, if provisions are made in the partnership deed in respect to payment of interest on capital, then partners are entitled to receive interest on their capital contributions as per the rate of interest mentioned in the agreement.

(5) Salary or Commission to Partners : As per the provisions made in the Indian Partnership Act,
1932, no salary, commission, allowance or any remuneration is to be given to any of the partners for any extra work done by partners for the firm. However, if any provision is made in partnership deed, then partners are entitled to get commission or salary as per the agreement.

(6) Admission of a new Partner : As per the provisions of the Indian Partnership Act, 1932, no outside person can be admitted into the firm as a partner without the consent of all partners.

Methods of Capital Accounts-

Amount in cash or in kind brought in by the partner to manage business activities is called Capital. The capital contribution may be in the form of cash or in the form of assets other than cash, e.g. Goods, Machinery, Land, Buildings, Furniture, etc. An amount of capital may be either in their : profit sharing ratio or in equal ratio. Such amount of capital may be in any proportion as per the mutual understanding of the partners. There are two methods of maintaining the capital accounts of the partners, viz. (1) Fixed Capital Method and (2) Fluctuating Capital Method.

The Indian Partnership Act, 1932 is silent on the point of adoption of specific method of capital by the Partnership firm. The partners themselves may decide which method of capital is to be followed and mention the method of capital adopted in the partnership deed. If partnership deed is silent on
this point, then the partnership firm has to adopt Fluctuating Capital Method.

Fixed Capital Method : Under this capital method opening balance of capital of a partner remains same upto at the end of that financial year. These capital balances will change only when partner introduces an additional capital or withdraws a part of his capital from the firm. Under Fixed Capital Method, along with capital account, a separate personal account, called Current Account is also opened and operated for every partner to record other dealings of partner with the partnership firm.

(i) Partner’s Capital Account: In this account the entries for the following transactions are recorded :

• Amount contributed by the partner in the beginning or opening balance of capital if the partnership firm is already established its business.
• Additional capital if any introduced by the partner during the accounting year.
• Part of the capital withdrawn by the partner during the accounting year.

Usually Partner’s Capital Account shows credit balance and it is shown on the Liabilities side of Balance Sheet.

Pro forma of Partners’ Capital Accounts : The pro forma of Partners’ Capital Accounts prepared under Fixed Capital Method is shown below : It is assumed that there are two partners, viz. X and Y.

Journal Entries:

(1) When cash is brought In the firm by the partner as additional capital:

(2) When additional capital is introduced in the firm by the partner in the form of Assets:

(3) When part of the capital is withdrawn by the partner:

(ii) Partners’ Current Accounts : If Fixed Capital Method is adopted by the firm, then Current Account for each partner is opened and operated. In Current Account, following transactions are recorded :

• Drawings (if any) made by the partner in the current accounting year.
• Cash or goods or any other asset taken over by the partner.
• Interest on Partners’ Capital allowed by the firm.
• Interest on Partner’s Drawings charged by the firm.
• Salary, commission, rent, interest on loan, allowance, etc. payable to the partner.
• Distribution of net profit or net loss of the firm.

Pro forma of Partners’ Current Accounts : The pro forma of Partners’ Current Accounts prepared under Fixed Method is shown below : in the following pro forma ledger accounts, it is assumed that X’s Current A/c showed a credit balance and Y’s Current A/c showed a debit balance at the beginning of the year.

Journal Entries :

(1) Interest allowed on Partners’ capital :

(2) Salary/Commission allowed to Partners :

(3) Cash/Goods withdrawn by the partners from the business for their personal use :

(4) Interest charged on Partners’ Drawings :

(5) Division or distribution of net divisible profit or loss :

Partners’ Current Accounts may either show debit balance or credit balance. Credit balances of Partners’ Current Accounts are transferred to Liabilities side of Balance Sheet. Similarly, debit balances of Partners’ Current Accounts are transferred to Assets side of Balance Sheet.
Effects of above entries in Profit and Loss A/c is as follow :

Pro forma of Profit and Loss Account :

Fluctuating Capital Method : In the Fluctuating Capital method, balances on capital accounts changes every year. Under this method, to record partners dealings with partnership firm, only one account ‘Capital Account’ is opened and following transactions are recorded in it:

• Initial or opening balances of capital
• Additional capital brought in by partners in form of cash or its kind (Assets)
• Salary/Commission payable to partners
• Interest payable on capital balance to partners
• Drawings made during the year and interest payable on drawings by the partners
• Withdrawal of part of the capital by the partners
• Division and transfer of net divisible profit or net adjustable loss of the firm.

The credit balances of fluctuating capital accounts of the partners are recorded separately on the Liabilities side of the Balance Sheet.

Pro forma under Fluctuating Capital Method :

By going through these Maharashtra State Board Organisation of Commerce and Management 11th Notes Chapter 1 Introduction of Commerce and Business students can recall all the concepts quickly.

Maharashtra State Board Organisation of Commerce and Management 11th Notes Chapter 1 Introduction of Commerce and Business

Human Activities –

Non-Economic Activities

• Done without monetary reward.
• Done to satisfy personal social or religious requirements.
• Examples
  • Teacher teaching her son.
  • Serving people.
  • Cooking by mother, etc.

Economic Activities:

• Involves production, distribution and consumption of goods and services.
• Done for monetary reward
• Examples
  • Teacher teaching in a school.
  • Worker working in a factory.
  • Doctor working for a hospital.
• Further divided into 3
  1. Business
  2. Profession
  3. Employment

Definition of Business-

By Prof. L. H. Haney
“Business activities are all those human activities which are directed towards the prod uction and processing of wealth”

By Pride, Hughes and Kapoor “The organised efforts of individuals to produce and sell for a profit, the goods and services that satisfy society’s needs”

Characteristics / Features of Business-

1. Continuity in Dealings: Every business requires regularity in transactions.
2. Uncertain Returns: Returns are never predictable or guaranteed, it may earn profit or suffer a loss.
3. Risk Element: Exposure to loss due to some unfavorable or undesirable event. Intensity of risk can be minimized but can’t be avoided.
4. Satisfaction: Satisfying the customers by providing quality products and services at a reasonable price.
5. Two Parties: Minimum two parties are required for exchange i.e. the seller and the buyer.
6. Economic Activity : To earn money or livelihood.
7. Profit Motive :
8. Basic purpose of business is to earn the profit.
9. It is spine of business which keeps the business growth till long term.
10. Production of Goods and Services : Goods are either manufactured or procured from the supplier with aim of selling to consumers for profit.
11. Exchange of Goods and Services :
    1. Transfer of goods and services directly or indirectly with money or money’s worth.
    2. e.g. Buying clothes against cash.
12. Dealings in Goods and Services :

• Every business is involved either with Goods or Services.
• Goods-
  • Consumer Goods (Tea, Milk, Pencil, etc.)
  • Capital Goods (Machinery, Plant, Furniture, etc.)

Profession-
Part of economic activities under which a person uses his educational knowledge and special skill to
render services for earning some income.
e.g. Doctor, Lawyer, Chartered Accountant, Professor, etc.

Features of Profession-

(i) Qualification : Practiced after acquiring required qualifications.

(ii) Returns :

• Professional gets fees in exchange of service rendered.
• Can be employed in an organization or self employed.

(iii) Capital:

• Either can be practiced independently or professionals can work under someone.
• Independent practiced professional requires huge capital for setup.

(iv) Work Nature :
Professionals hold special knowledge and do skillful work like Doctors , Lawyers, etc.

(v) Aim:

• Practiced for earning money.
• Render service to their clients and solve their problems.

(vi) Registration and Membership : Professionals have to register them with their respective council and get certificate for practice.

(vii) Non-transferability : Profession cannot be transferred to other person on the will of professional.

Employment-

• It is an economic activity in which people work for others for remuneration.
• Term and conditions are agreed by both employer and employee.

Features of Employment-

(i) Qualifications:

Skilled Job

• Requires specific qualifications,
• E.g. Job of Accountant or Nurse

Unskilled

• Requires specific qualifications,
• E.g. Office boy or Clerk.

(ii) Monetary Returns :

Wages

• Decided in advance before appointment.
• Paid daily or weekly.

Salary

• Paid monthly
• Other benefits are also provided.

Capital: No capital is required for employment.

Nature of Work : The nature of job decide the nature of work.

Aim: To earn money for meeting needs of employer and employee.

Registration:

• No registration is required.
• Has to follow rules and regulation as mentioned in the terms and conditions of the employment- contract.

Non-transferability : Employment cannot be transferred from one person to another.

Business Objectives-

1. Economic Objectives
2. Social Objectives

Economic Objectives

• Searching New Customers
• Earning Profit
• Best Possible use of Resources
• Innovations

Social Objectives

• Contributing to the welfare of the society
• Avoiding unfair trade practices
• Supplying quality Products
• Help to solve social problems
• Employment generation
• Welfare of employees

Role of Profit in Business
Profit = Revenue – Total Cost

Role of Profit

1. Returns to investor
2. Research and Deve1opmen
3. Growth and Expansion
4. Increases efficiency
5. Means of livelihood.
6. Reputation .
7. Reward for risk
8. Survival

Classification of Business Activities-

1. Industry
2. Economic Activities-

Industry:

1. Primary Industry
2. Secondary Industry
3. Tertiary Industry

Primary Industry

• Industry
• Agriculture
• Extractive
• Genetic

Secondary Industry

• Manufacturing
• Construction

Tertiary Industry

• Transport
• Banking
• Hotel
• Tourism
• Entertainment

Economic Activities-

• Trade
• Auxiliaries to trade-

Trade

• Home Trade
• Foreign Trade

Home Trade

• Wholesale Trade
• Retail Trade

Foreign Trade

• Import
• Export
• Entrepot/ Re-export

Auxiliaries to trade-

• Transport
• Warehousing
• Insurance
• Banking
• Advertising
• Mercantile agents
• Communication

Word Meaning:

monetary – related to money; consumption – using; livelihood – to get basic needs of life; systematic – properly arranged; reward – returns; multiple – many; complex – difficult; manpower – human; cultivating – a process in farming; warehousing – place where goods are stored; spine – backbone; intangible – can’t be seen physically; continuity – regularly; predictable – expected; intensity – force; render – provide; acquiring – obtaining; code of conduct – set of rules; expert – person knowledgeable in a particular area; remuneration – salary; quarters – place to stay provided by company to his employees; subsidized – in low cost; bulk – in large quantity; survival – continuing to live; scarce – short in supply; unfair trade – wrong business practice; black marketing – illegal trade; misleading – false information; divyang – physically challenged; welfare – wellbeing; impartial – equal treatment; incentives – benefits in terms of money; retention – continuation; volume – size; diversification – process of enlarging the business; adverse – unfavorable; utility – useful; crude – raw material; tertiary – service; uninterrupted – continuation; auxiliaries – assistant; hindrances – problems; reasonable – low cost; rescue – save; desire – strong wish to have something; prominent – important; scattered – found in various location; information explosion – increased amount of information; broader – large; narrow – limited.

Maharashtra State Board Class 11th Notes

• Maharashtra State Board Class 11 Economics Notes
• Maharashtra State Board Class 11 Geography Notes
• Maharashtra State Board Class 11 History Notes
• Maharashtra State Board Class 11 Political Science Notes
• Maharashtra State Board Class 11 Psychology Notes
• Maharashtra State Board Class 11 Sociology Notes
• Secretarial Practice 11th Commerce Notes
• Organisation of Commerce and Management 11th Notes
• Bookkeeping and Accountancy 11th Notes

Maharashtra State Board Notes

Maharashtra State Board Class 12th Notes

• 12th Science Physics Notes Maharashtra State Board
• 12th Science Chemistry Notes Maharashtra State Board
• 12th Science Biology Notes Maharashtra State Board
• Maharashtra State Board Class 12 Economics Notes
• Maharashtra State Board Class 12 Geography Notes
• Maharashtra State Board Class 12 History Notes
• Maharashtra State Board Class 12 Political Science Notes
• Maharashtra State Board Class 12 Psychology Notes
• Maharashtra State Board Class 12 Sociology Notes
• Secretarial Practice 12th Commerce Notes
• Organisation of Commerce and Management 12th Notes
• Book Keeping & Accountancy Notes 12th

Maharashtra State Board Notes