Meaning and definitions of Partnership.

A partnership is an association of two at more persons to carry on as co owners of a business and to share its profits and losses. Section 4 of the Partnership Act defines 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. Persons who have entered into partnership with one another are called individual partners and collectively a firm and the name under which their business is carried on is called the firm name.

The main features of partnership are given below:

1.

Agreement

There must be agreement between the parties concerned. This is the most important characteristics of partnership. Without agreement partnership cannot be formed. "No agreement no partnership." But only competent persons are entitled to make a contract. There are some provisions contained in the partnership agreement. These are determined clearly before the commencement of business. But it differs from business to business. This documents may be written or oral. But it must be written so that disputes may be settled according to the provisions of agreement.

2.

Number of Partnership

There should be more than one person to form a partnership. But there is restriction for the maximum number of partners. In case of ordinary business, the partners must not exceed 20 and in case of banking must not exceed 10 (before nationalization).

3.

Business

The object of the formation of partnership is to carryon any type of business. It may be manufacturing or merchandise type small or large scale business. But it should not be illegal business in the country concerned.

4.

Profit motive

The basic motive of the formation of partnership is to earn profit. This profit is distributed among the partners according to agreed proportion. If there is loss it will be sustained by all partners except the minor.

5.

Conduct of Business

The business of partnership is conducated by all the partners or any or them acting for all. But each partner is allowed to participate in the management by law.

6.

Entity

It has no separate entity apart from its members. It is not independent of the partners. Law has not granted it any legal entity.

7.

Unlimited liability

This is the prominent feature of partnership that the liability of each partner is not limited to the amount invested but his private property is also liable to pay the business obligations.

8.

Investment

Each partner contributes his share in the capital according to the agreement. Some persons become partners without investing any capital to the business. But they devote their time, energy and ability to their business instead of capital and receive profit.

9.

Transferability of share

There is restriction to transfer the share from one partner to another person without the consent of existing partners. So the investment in the partnership remains confined into few hands.

10.

Position

One partner is an agent as well as principal to other partner. He can bind the other person by his act. In the position of an agent he can make contract with another person or parties on behalf of his concerned firm.

11.

Mutual Confidence

The business of the partnership cannot be conducted successfully without the element of mutual confidence and cooperation of partners. So the members must have trust and confidence in each other.

12.

Free Operation

There are no strict rules and regulations to control the partnership activities in our country i.e. no restriction for the audit of accounts, submission of various reports and other copies to any government authority. So this organization may operate freely without any interference.

2.Meaning of partnership deed?its content?rules applicable in absence of partnership deed?

Partnership deed forms the basis of partnership. Partnership deed is a document containing all the matters according to which mutual rights, duties and liabilities of the partners in the conduct and management of the affairs of the firm are determined. Hence, it contains the terms and conditions of the partnership. It is helpful in preventing and resolving disputes among the partners. A partnership deed can be altered at any time with the consent of all the partners. The past experiences of partnership firms show that there are disputes among partners over many things and these results in the closure of the firm. If the areas of dispute or conflict are spotted earlier and a clear understanding is reached, then the business can run smoothly. So, partnership deed or agreement is a document which is prepared to explain important points so that the chances of conflict are minimized. Even if there is a dispute it helps in easier settlement. So, written deed should be preferred.

Main Content of Partnership Deed Some of the important clauses to be included in a partnership deed are as follows: (1) Name of the firm and Its Address : The deed should contain of the firm and place of its business. (2) Name and Address of Partners : The deed should also contains the names and address of all partners. (3) Nature of Firms Business : The nature of business proposed to be carried and its limitation should be included in it. (4) Duration of Partnership : It the partnership is established for a fixed duration or for a fixed work, it should be stated in it. (5) Partners Capitals : The deed should contain the total amount of capital and contributions by each partner. (6) Interest on Capital : If the partners decide to change interest on their capitals, the rate should be mentioned in the deed. (7) Drawing and Interest on Them : The deed should contain the limit of drawings by every partner and the rate of interest to be charged. (8) Division of Profit : Profit and loss sharing ratio should be stated in the deed. If it is not mentioned partners are authorized to share equally according to Partnership Act. (9) Partners Salary and Commission : If the partners decide to pay salary and commission to the partners, the deed should contain the amount of salary or commission payable to any partner for the services rendered to the business. (10) Rights and Duties of Partners : If any partner has some special rights and duties regarding to conducts of business or if the liability of any partner is limited to the capital invested by him, these facts should also be mentioned in it. (11) Admission and Retirement of Partners ; After the establishment of partnership some new partners may be admitted and some may retire from the business. If any definite procedure is to be adopted at the time of admission or retirement of partner, it should be stated in it. (12) Death of a Partner : The procedure of calculating the amount due to a deceased partner and the method of its payment to his successors, should also be decided and stated in the deed. (13) Valuation of Goodwill ; The method of valuation of goodwill at the time of admission, retirement or

death of a partner should be also be clearly stated in it. (14) Revaluation of Assets and Liabilities ; The method of revaluation of assets and liabilities on admission, retirement or death of a partner should also be clearly stated in it. (15) Accounts and Audit : The procedure of keeping accounts and their audit should also be stated in it. (16) Dissolution of Partnership ; The deed should contain the firm and the method of the final settlement of accounts.

Q3.Meaning of Goodwill,Factors affecting goodwill,method of calculation of goodwill?

An intangible asset which provides a competitive advantage, such as a strong brand, reputation, or high employee morale. In an acquisition, goodwill appears on the balance sheet of the acquirer in the amount by which the purchase price exceeds the net tangible assets of the acquired company. Meaning of Goodwill Over a period of time, a business firm develops a good name and reputationamong the customers. This help the business earn some extra profits ascompared to a newly set up business. In accounting capitalised value of thisextra profit is known as goodwill. For example, your firm earns say Rs 1200and the normal profit was expected from your firm Rs 700. The rate of returnis @ 10%. In this case goodwill is ascertained as under :
Step 1 : Excess profit=Actual profit Desired normal profit1200 700 = 500 Step 2 : Goodwill=50010010 = Rs 5000

In other words, goodwill is the value of the reputation of a firm in respect of the profit earned in future over and
above the normal profit. It may also be defined as the present value of the capacity to earn future profits. This means that a firm can be said to have goodwill only if it has capacity to earn profit in future. A firm earning normal profit like similar firms cannot claim to have any goodwill The factors affecting goodwill are as follows: 1.Location : If the firm is located at a central place, resulting in good sale, the goodwill tends to be high. 2.Nature of Business : A firm that produces high value products or having a stable demand is able to earn more profits and therefore has more goodwill. 3.Efficient management :

A well managed firm earns higher profit and so the value of goodwill will also be high.
4.Quality :

If a firm is known for the quality of its products the value of goodwill will be high. 5.Market Situation : The monopoly condition to earn high profits which leads to higher value of goodwill. 6.Special Advantages : The firm has special a advantages like importing licenses, long term contracts for supply of material, patents, trademarks, etc. enjoy higher value of goodwill

Treatment of Goodwill When the new partner acquires his/her share profit from the existing partners.This will result in the reduction of the share of existing partners. Therefore,he/she compensates the existing partners for the sacrifices. He/shecompensates them by making payment in cash or in kind. The payment isequal to his/her share in the goodwill. As per Accounting Standard 10(AS-10) that goodwill should berecorded in the books only when some consideration in money hasbeen paid for it. Thus, if a new partner does not bring necessarycash for goodwill, no goodwill account can be raised in the books.He/she should pay for goodwill in addition to his/her contribution of capital

1st Method
Average profit method In this method, we calculate previous years profits average and then we multiply it with number of purchase years.

2nd Method
Super profit method In this method, we calculate normal profit with normal rate on investment. Then we calculate super profit with following formula. Super profit = actual profit normal profit or Super profit = average profit - normal profit Goodwill = super profit X No. of purchase years

3rd Method
Capitalization method

In this method, we calculate capital employed with following formula Capital employed = average profit or normal profit X 100/ Rate Goodwill = capital employed Net Assets

4th Method
Annuity Method In this method we first of all calculate annuity . Annuity means annual value . These day , accountant are using different annuity tables for calculating annuity , after this they can easy calculate goodwill with following formula . Goodwill = Super profit X Annuity

What do you understand by revaluation a/c?

During the admission of a new partner, the firm stands reconstituted and consequentlythe assets are revalued and liabilities are reassessed. It is necessary to showthe true position of the firm at the time of admission of a new partner. If the values of the assets are raised, gain will increase the capital of theexisting partners. Similarly, any decrease in the value of assets, i.e. loss willdecrease the capital of the existing partners. For this purpose aRevaluationAccount is prepared. This account is credited with all increases in the value of assets and decrease in the value of liabilities. It is debited with decreaseon account of value of assets and increase in the value of liabilities. Thebalance of this account shows a gain or loss on revaluation which istransferred to the existing partners capital account in existing profit sharing ratio