Partnership Deed

 

Meaning

A partnership is formed by an agreement. This agreement may be written or oral. Though the law does not expressly require that there should be an agreement in writing but the absence of a written agreement may be a source of trouble in managing the affairs of the partnership firm. Therefore, a partnership deed should be written, assented and signed by all the partners.

Contents of Partnership Deed

 The partnership deed usually contains the following particulars:

_ Name of the firm;

_ Names and addresses of all partners;

_ Nature and place of the business;

_ Date of commencement of partnership;

_ Duration of partnership, if any;

_ Amount of capital contributed or to be contributed by each partner;

_ Rules regarding operation of bank accounts;

_ Ratio in which profits are to be shared;

_ Interest, if any, on partners’ capital and drawings;

Interest on loan by the partners(s) to the firm;

_ Salaries, commissions, etc. if payable to any partner(s);

_ The safe custody of the books of accounts and other documents of the firm;

_ Mode of auditor’s appointment, if any;

_ Rules to be followed in case of admission, retirement, death, of a partner;

_ Settlement of accounts on dissolution of the firm; and

_ Mode of settlement of disputes among the partners.

 

Fluctuating Capital Method

Under the fluctuating capital method, only one account viz., the capital account for each partner, is maintained. It records all items affecting partner’s account like interest on capital, drawings, interest on drawings, salary, commission, and share of profit or loss in the capital account itself. As a result of these, the balance in the capital account keeps on fluctuating.

The items that usually appear on the debit and the credit side of the Partners’ capital account are :

 

Credit Side

1. Capital introduced or the opening balance;

2. Additions to capital made during the year, if any;

3. Interest on capital, if any;

4. Salary to the partners, if any;

5. Commission and bonus to the partners;

6. Share of profit.

 

Debit Side

1. Drawings made during the year, if any;

2. Interest on drawings, if any;

3. Share of loss, if any;

4. Withdrawal of capital, if any;

5. Closing Balance.

 

Thus, the capital account of a partner will appear as follows:

Partership Account 1

 

 

 

 

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