Thursday, January 5, 2012

GOODWILL AND PARTNERSHIP



  A firm in which two or more persons are working together as owners is known as a partnership.
  The individuals working in a partnership firm are known as Partners.

Partnership Agreement: It is desirable that there should be a written agreement between the partners to avoid any dispute that may arise in future. The document which contains the terms and conditions regarding the conduct of partnership business is known as Partnership Agreement.

      Contents of Partnership Agreement: The usual contents of a partnership agreement are:
       1. The capital to be contributed by the each partner.
       2. The maximum amount of drawings which a partner can make during a year.      
       3. The rate of interest, if any, to be paid on capital before the profits are shared.
       4. The rate of interest, if any, to be charged on drawings made by the partners during the year.
       5. Salaries, Commission, Remuneration, if any, to be allowed to any partner.
       6. The ratio in which the profits and losses shall be shared among the partners.
                Profits and losses are generally shared either
                                (a) Equally; or
                                (b) In the ratio of capital contributed by each partner (Capital ratio); or
                                (c) In any other ratio to which the partners may agree.
       7. Arrangements for the admission of a new partner
       8. Procedures to be carried out in the event of retirement or death of a partner. 
Capital accounts in Partnership: The capital accounts in partnership may be maintained under:
                   A. Fixed capital method
                   B. Fluctuating capital method
A. Fixed Capital Method: Under this method two accounts are kept for each partner viz. Capital account and Current account. In the capital account the original capital investment only will be shown every year. The current account is kept for recording Interest on capital allowed, salary allowed, share of profit, drawings, interest on drawings etc. This account may show either a debit balance or a credit balance. Debit balance represents drawings in excess of profits to which a partner was entitled. Credit balance means profits undrawn.

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