Fundamentals of Partnership Class 12 Notes

This chapter is the most important as without understanding the fundamentals of Partnership, you can not understand further concepts of Partnership. Here are the fundamentals of partnership class 12 notes.

Rules for Partnership

Accounting if there is no partnership deed:

1. The profits will be shared equally.
2. No interest on capital will be provided to any partner.
3. No interest on drawings will be charged.
4. No salary, bonus, commission, or any kind of remuneration will be provided.
5. If there is any loan taken by a firm from the partner, interest at 6% per annum will be allowed to the partner.

Recording of Partnership Transactions

1) P/L Appropriation A/c (Belonging to firms)
2) Partner’s Current/Capital A/cs (Belonging to Partners)

Format of P/L Appropriation A/c

Journal Entries regarding P/L A/c

1) For Transfer of Net Profit

P/L A/c Dr.
To P/L Appropriation A/c

2) For Transfer of Net Loss

P/L Appropriation A/c Dr.
To P/L A/c

3) For Interest on Capital

P/L Appropriation A/c Dr.
To IOC A/c

IOC A/c Dr.
To Partner’s Capital/Current A/c

4) For any kind of Salary, Bonus, Commission to Partner

P/L Appropriation A/c Dr.
To Salary/Commission/Bonus A/c

Salary/Commission/Bonus A/c Dr.
To Partner’s Capital/Current A/c

5) For Interest on Drawings

IOD A/c Dr.
To P/L Appropriation A/c

Partner’s Capital/Current A/c Dr.
To IOD A/c

6) For Divisible Profit/Loss

P/L Appropriation A/c Dr. (For Profit)
To Partner’s Capital/Current A/c

Partners Capital/Current A/c Dr. (For Loss)
To P/L Appropriation A/c

7) For Interest on Loan

IOL A/c Dr. (Due)
To Partner’s Loan A/c

P/L A/c Dr. (Charge from P/L A/c)
To IOL A/c

Charge Against Profit Vs Appropriation of Profits

Partner’s Capital Accounts

There are two methods of maintaining a partner’s capital accounts. These are as follows:

1) Fluctuating Capital Method

Under this method, only a single Capital A/c is maintained.

Partner’s Capital A/c

2) Fixed Capital Method

Under this method, two accounts are maintained as follows:

Partner’s Capital A/c

Partner’s Current A/c

Calculation of Interest on Capitals

• Interest on Capital will only be provided if it is given in the deed.
• Interest on Capital will be provided concerning time and capital.
• Interest on Capital will always be provided on opening capital.
• Opening Capital = Closing Capital- Profit+ Drawing- Additional Capital

Note: In case nothing is mentioned in the question, the period will not be considered.

Calculation of Interest on Drawings

• Interest on Drawings is to be charged only if it is provided in the deed.
• Interest on drawings is calculated from the time of withdrawal of the amount.
• If the time of withdrawal is not given then interest will be charged for 6 months on the whole amount.

Fundamentals of Partnership TS Grewal Solutions 2024-25

Methods of Calculation of Interest on Drawings

1) Simple Method

IOD = Total Drawings*Rate/100*Month/12

2) Product Method

IOD = Total Product*Rate/100*1/12

Calculation of IOD if drawings are made monthly/quarterly

Accounting Treatment of Interest on Capital

Note: If the appropriations are more than the profit, in this case, the profits will be distributed amongst the partners in the ratio of appropriations.

If you have any doubts, you can ask them in the comments. If you want Free Book PDFs, TS Grewal Solutions, Notes, and Previous Year Questions, you can join our telegram group here: https://t.me/commerceclarity24