Exam Preparation Notes

About the Video Series

• This video will help give you an overview of the entire chapter before your exam.
• It includes revision of all theory and practicals.
• A total of 36 marks for Partnership and 44 marks for Analysis and Shared Adventure will be covered.

Partnership

Meaning of Partnership

• Partnership means a relationship between individuals who agree to share the profits of a business.
• According to the Indian Partnership Act, 1932, definition of partnership:

  "Partnership is the relationship between individuals who have agreed to share the profits of a business."

Characteristics of Partnership

• At least two persons are required.
• The act does not specify a maximum number of partners.
• Partnership is not a separate legal entity.
• There should be an agreement (Partnership Deed) among partners.

Partnership Agreement (Partnership Deed)

• It is a legal document between partners that specifies the rules and terms of the business.
• Also known as Articles of Partnership.

Provisions Without an Agreement

• If there is no partnership agreement, then:
  • No interest will be given on the capital.
  • Profits and losses will be shared equally.
  • No new partner can be admitted unless all partners agree.

Capital Account

Fixed Capital and Fluctuating Capital

• Fixed Capital Account:
  • It has a constant amount.
• Fluctuating Capital Account:
  • The amount keeps changing.

P&L Appropriation Account

• Account for distribution of profit or loss.
• Profits are divided into the capital account of partners.

Goodwill

Meaning of Goodwill

• Goodwill is an intangible asset that indicates the value of a business.

Need for Valuation of Goodwill

• Dissolution of business.
• Admission of a new partner or retirement of a partner.

Methods of Valuation of Goodwill

1. Average Profit Method
2. Super Profit Method
3. Capitalization Method

Change in Partners

Admission of a New Partner

• A new partner can be admitted only with the consent of the existing partners.

Retirement of Partners

• The retiring partner's capital account will be settled.
• Or it can be transferred to a loan.

Death of a Partner

• Profit is calculated based on charts.
• Time-based and Sales-based.

Dissolution

Types of Dissolution

1. Dissolution of Partnership
2. Dissolution of Partnership Firm

Methods of Dissolution

• By mutual agreement
• Compulsory dissolution
• Dissolution by notice
• Dissolution by court

Process of Dissolution

• Transfer assets and liabilities to the realization account.
• Transfer profits or losses to the capital accounts of partners.

Conclusion

• The theory of partnership and its application are important in exams.
• Theory questions are worth 7-10 marks.
• Study carefully and share important points.