NCERT Book Class 12 Accountancy (Part 1) Chapter 1 Accounting for Partnership: Basic Concepts

Accounting for Partnership: Basic Concepts 1

LEARNING OBJECTIVES
Y ou have learnt about the preparation of financial
statements for a sole proprietary concern. As the
business expands, one needs more capital and
After studying this chapter, larger number of people to manage the business and
you will be able to : share its risks. In such a situation, people usually
• Define partnership and adopt the partnership form of organisation.
list its essential features; Accounting for partnership firms has it’s own
• Identify the provisions of peculiarities, as the partnership firm comes into
the Indian Partnership existence when two or more persons come together
Act 1932 that are
relevant for accounting; to establish business and share its profits. On many
• Prepare partners’ capital issues affecting distribution of profits, there may not
accounts under fixed and be any specific agreement between the partners. In
fluctuating capital such a situation the provisions of the Indian
methods;
Partnership Act 1932 apply. Similarly, calculation
• Explain the distribution of interest on capital, interest on drawings and
profit or loss among the
partners and prepare the maintenance of partners capital accounts have their
Profit and Loss own peculiarities. Not only that a variety of
Appropriation Account; adjustments are required on the death of a partner
• Calculate interest on or when a new partner is admitted and so on. These
capital and drawing
under various situations; peculiar situations need specific treatment in
• Explain how guarantee
accounting that need to be clarified.
for a minimum amount The present chapter discusses some basic
of profit affects the aspects of partnership such as distribution of profit,
distribution of profits
among the partners; maintenance of capital accounts, etc. The treatment
of situations like admission of partner, retirement,
• Make necessary
adjustments to rectify death and dissolution have been taken up in the
the past errors in subsequent chapters.
partners capital
accounts; and
1.1 Nature of Partnership
• Prepare final accounts of
a partnership firm; When two or more persons join hands to set up a
business and share its profits and losses, they are
said to be in partnership. Section 4 of the Indian
Partnership Act 1932 defines partnership as the