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Simerpreet
SimerpreetHelpful
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  2. Vishnu_K Nil
    This answer was edited.

    Meaning of Partnership Deed A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called as a Partnership Agreement. Contents of a Partnership Deed A Partnership Deed shall mainly include the following contents: Name of the Partnership firmRead more

    Meaning of Partnership Deed

    A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called as a Partnership Agreement.

    Contents of a Partnership Deed

    A Partnership Deed shall mainly include the following contents:

    1. Name of the Partnership firm
    2. Address of the Partnership firm
    3. Details of all the Partners
    4. Date of commencement of the Business
    5. The amount of capital contributed by each of the partners forming the Partnership firm
    6. The Profit sharing ratio (The Business profit shared among the partners on a ratio basis)
    7. The rate or amount of Interest on Capital & the rate or amount of Interest on drawings to each partner respectively.
    8. The salary payable to each of the partners of the firm.
    9. The rights, duties, and power of each partner of the firm.
    10. The duration of the existence of the firm

    Importance of Partnership Deed

    1. Proper regulation of duties, liabilities, and rights of the partners are made in the partnership deed and hence there cannot be any issue during the course of the business.
    2. There can be no disputes between the partners upon Profit sharing, salary, commission, interest on capital, and interest on drawings.
    3. A partnership Deed acts as Legal proof for the conduct of the business and is used for many other registrations such as GST registration, and other related purposes.

     

    Format of a Partnership Deed

    The Partnership Deed shall originally be executed on an Indian Non-Judicial stamp paper.

    The format of the Partnership deed is given below with an assumption that 4 partners are forming the Partnership.

                                                                    PARTNERSHIP DEED

    This deed of partnership is made on [Date, Month, Year] between:

    1. [First Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as FIRST PARTNER.

    2. [Second Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as SECOND PARTNER.

    3. [Third Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as THIRD PARTNER.

    4. [Fourth Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as FOURTH PARTNER.

     

    Whereas, the parties hereto have agreed to commence business in partnership and it is expedient to have a written instrument of partnership. Now, this partnership deed witnesses as follows:

    1. BUSINESS ACTIVITY
    The parties hereto have mutually agreed to carry on the business of [Description of Business Activity Proposed].

    2. PLACE OF BUSINESS
    The principal place of the partnership business will be situated at [Address Line 1, Address Line 2, City, State, Pin Code]

    3. DURATION OF PARTNERSHIP
    The duration of the partnership will be at will.

    4. CAPITAL OF THE FIRM
    Initially, the capital of the firm shall be Rs. [Total Partners Contribution].

    5. PROFIT SHARING RATIO
    The profit or loss of the firm shall be shared equally among all the partners and transferred to the partner’s current account.

    6. MANAGEMENT
    The [First Partner] of the firm shall be Managing Partner and he will look after all the day-to-day transactions of the firm and any legal activities in the name of the firm and the remaining partners shall cooperate to do so.

    7. OPERATION OF BANK ACCOUNTS
    The firm shall open a current account in the name of [Partnership Firm Name] at any bank and such account shall be operated by [First Partner] and [Second Partner] jointly as declared from time to time to the Banks.

    8. BORROWING
    The written consent of all Partners will be required for the partnership to avail credit facilities from any financial institution.

    9. ACCOUNTS
    The firms shall regularly maintain in the ordinary course of business, true and correct accounts of all its transactions and also of all its assets and liabilities, the property books of account, which shall ordinarily be kept at the firm’s place of business. The accounting year shall be the financial year from 1st April onwards and the balance sheet shall be properly audited and the same shall be signed by all the Partners. Every Partner shall have access to the books and the right to verify their correctness.

    10. RETIREMENT
    If any partner shall at any time during the subsistence of the partnership, be desirous of retiring from the firm, it shall be competent from his to do so, provided he shall give at least one calendar month’s notice of his intention of doing so. The remaining partner shall pay the retiring partner or his legal representatives of the deceased partner, the purchase money of his share in the assets of the firm.

    11. DEATH OF PARTNER
    In the event of the death of any partners, one of the legal representatives of the deceased partner shall become the partner of the firm and in the event, the legal representative shows their denial to point the firm, they shall be paid part of the purchase amount calculated as on the date of the death of the partner.

    12. ARBITRATION
    Whenever there by any difference of opinion or any dispute between the partners shall refer the same to the arbitration of one person. The decision of the arbitration so nominated shall be final and binding on all partners, such arbitration proceedings shall be governed by Indian Arbitration Act, which is in force.

    In witness whereof, this deed of partnership is signed sealed, and delivered this [Day, Month, Year] at [City, State]:

    FIRST PARTNER                                            SECOND PARTNER

    [Address Line 1]                                                        [Address Line 1]
    [Address Line 2]                                                        [Address Line 2]
    [City, State, Pin Code]                                              [City, State, Pin Code]

    THIRD PARTNER                                            FOURTH PARTNER

    [Address Line 1]                                                         [Address Line 1]
    [Address Line 2]                                                        [Address Line 2]
    [City, State, Pin Code]                                              [City, State, Pin Code]

    WITNESS ONE                                                  WITNESS TWO

    [Address Line 1]                                                         [Address Line 1]
    [Address Line 2]                                                         [Address Line 2]
    [City, State, Pin Code]                                               [City, State, Pin Code]

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Ishika Pandey
Ishika PandeyCurious
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  2. SidharthBadlani CA Inter Student
    This answer was edited.

    Debtors are treated as an asset. A debtor is a person or an entity who owes an amount to an enterprise against credit sales of goods and/or services rendered. When goods are sold to a person on credit that person is called a debtor because he owes that much amount to the enterprise. Debtors are consRead more

    Debtors are treated as an asset.

    A debtor is a person or an entity who owes an amount to an enterprise against credit sales of goods and/or services rendered.

    When goods are sold to a person on credit that person is called a debtor because he owes that much amount to the enterprise.

    Debtors are considered assets in the balance sheet and are shown under the head of current assets.

    For example – Ram Sold goods to Sam on credit, Sam did not pay for the goods immediately, so here Sam is the debtor for Ram because he owes the amount to Ram. This amount will be payable at a later date.

    Liabilities Vs Assets

    Liabilities

    It means the amount owed (payable) by the business.  Liability towards the owners ( proprietor or partners ) of the business is termed internal liability. For example, owner’s capital, etc

    On the other hand, liability towards outsiders, i.e., other than owners ( proprietors or partners ) is termed as an external liability.
    For example creditors, bank overdrafts, etc.

    Assets

    An asset is a resource owned or controlled by a company. The benefit from the asset will accrue to the business in current and future periods. In other words, it’s something that a company owns or controls and can use to generate profits today and in the future.
    For example – machinery, building, etc.

    Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business. They are readily realizable into cash.

    In other words, we can say that the expected realization period of current assets is less than the operating cycle period.

    For example, goods are purchased with the purpose to resell and earn a profit, debtors exist to convert them into cash i.e., receive the amount from them, bills receivable exist again for receiving cash against it, etc.

     

    Why debtors are treated as assets?

    Now let me explain to you why debtors are treated as assets and not as liabilities because of the following characteristics :

    • We can say that the expected realization period is less than the operating cycle period.
    • Expected to be converted into cash in the normal course of business.
    • In the business, debtors are treated as current assets which we can see on the asset side of the balance sheet.
    • Debtors have a debit balance.

     

    Conclusion

    Now after the above discussion, I can conclude that debtors are considered to be an asset and not a liability.

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Simerpreet
SimerpreetHelpful
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  2. Kajal

    A Realisation account is prepared at the time of dissolution of the Partnership firm to ascertain profit or loss from the sale of assets and payment of liabilities of the firm. All assets that can be converted into cash (i.e. from which any value can be realised) and all external liabilities to be pRead more

    A Realisation account is prepared at the time of dissolution of the Partnership firm to ascertain profit or loss from the sale of assets and payment of liabilities of the firm. All assets that can be converted into cash (i.e. from which any value can be realised) and all external liabilities to be paid are transferred to the Realisation A/c.

    So, Cash and Bank (already in liquid form), fictitious assets (doesn’t have any value to be realised), Partner’s Loan (internal liability) and Undistributed profits (not something that can be realised) are not included in the Realisation account.

     

    DISSOLUTION OF PARTNERSHIP FIRM

    It means the firm closes down its business and comes to an end. Simply, it means the firm will cease to exist in the future. As the firm is closing down, its assets are sold, liabilities are paid off, and the remaining amount (if any) is distributed among the partners.

     

    REALISATION ACCOUNT

    This account is prepared only once, at the time of dissolution of the Partnership firm. It is opened to dispose of all the assets of the firm and make payments to all the external creditors of the firm.

    It ascertains the profit earned or loss incurred on the realisation of assets and payment of liabilities.

     

    Items not included in Realisation A/c

     

    1. ASSETS

    CASH AND BANK BALANCES are not included in the Realisation account as the purpose of the Realisation account is to sell assets to realise cash, but cash and bank are already in liquid form and thus, not included.

    These are directly used for the payment of liabilities and if there is any remaining amount, then that amount is distributed among the partners.

     

    FICTITIOUS ASSETS are huge expenses or losses that are written off over the years by writing off a portion of it every year for the next few years like accumulated losses, balance of Advertisement expenses, Preliminary expenses, Loss on the issue of Debentures, etc. They don’t have any physical existence or realisable value.

    Since nothing can be realised from these assets they are not included in the Realisation account. These are transferred to the Partner’s Capital A/c.

     

    2. LIABILITIES

     

    PARTNER’S LOAN refers to the loan given to the firm by any partner of the firm. 

    Suppose, there are three Partners A, B and C. ‘C’ gave the firm a loan of $5,000. This $5,000 will be recorded as a Partner’s Loan and not just as a normal loan taken from an external party.

    Since, Partner’s Loans are the internal obligation of the firm, they are not included in the realisation account instead a separate account is prepared to settle Partner’s Loan after all external liabilities are settled.

    So, we can say in the Realisation account only external liabilities are included and paid.

     

    UNDISTRIBUTED PROFITS  are the  Profits that are not distributed among the Partners like General Reserve, Reserve Fund, and Credit balance of P&L A/c.

    They are not included in the realisation account as they can’t be sold as an asset neither they are any liabilities that should be paid. Undistributed profits belong to the Partners of the firm and thus, are transferred to Partner’s capital A/c.

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Astha
AsthaLeader
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Balance SheetMiscellaneous Expenditure
  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    Miscellaneous expenditure in the balance sheet The expenses that are written off in the current financial year are shown on the debit side of the profit and loss account. However, those that are not written off during the current financial year are shown in the balance sheet on the Assets Side as MiRead more

    Miscellaneous expenditure in the balance sheet

    The expenses that are written off in the current financial year are shown on the debit side of the profit and loss account. However, those that are not written off during the current financial year are shown in the balance sheet on the Assets Side as Miscellaneous expenditure.

    Miscellaneous expenditure are those expenses that are not categorized as Operating expenses i.e. these are not classified as manufacturing, selling, and administrative expenses.

    For example, BlackRock has spent 5,00,000 which will be written of in 5 consecutive years as an Advertisement expense. During the current financial year, only 1,00,000 will be written off and the rest will be carried to the next year and year thereafter.

    Treatment in the first year:

    • 1,00,000 which is written off during the current financial year will be shown on the debit side of the Profit and Loss account.
    • 4,00,000 which is carried forward will be shown on the assets side of the balance sheet as miscellaneous expenditure because all assets and expenses have a debit balance.

    Treatment in the second year:

    • 1,00,000 which is written off during the current financial year will be shown on the debit side of the Profit and Loss account.
    • 4,00,000 which is carried forward will be shown in the assets side of the balance sheet as a miscellaneous expenditure.

    The same will be done in the third, fourth, and fifth years.

    Conclusion

    Deferred revenue expenditure is also a long-term expenditure the benefit of which cannot be derived within the same year. So the amount that is written off during the current year is shown on the debit side of the profit and loss account and the amount which is not written off during the current financial year is shown on the assets side under the head Miscellaneous expenditure.

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Jasmeet_Sethi
Jasmeet_SethiCurious
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Depletion Amortization Depression

  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    The correct option is 2. Amortization. Depreciation in spirit is similar to Amortization because both depreciation and amortization have the same characteristics except that depreciation is used for tangible assets and amortization for intangible assets. To make it clear, intangible assets are thoseRead more

    The correct option is 2. Amortization.

    Depreciation in spirit is similar to Amortization because both depreciation and amortization have the same characteristics except that depreciation is used for tangible assets and amortization for intangible assets.

    To make it clear, intangible assets are those assets that cannot be touched i.e. they are not physically present. For example, goodwill, patent, trademark, etc. Hence, these assets are amortized over their useful life and not depreciated.

    Example for Amortizing intangible assets: A manufacturing company buys a patent for Rs 80,000 for 8 years. Assuming that the residual value of the patent after 8 years to be zero.

    The depreciation to be written off will be

    Yearly Depreciation = Cost of the patent – Residual value / Expected life of the asset.

    = 80,000 – 0 / 8

    = Rs 10,000 every year.

    Whereas, tangible assets are those assets that can be touched i.e. they are physically present. For example, building, plant & machinery, furniture, etc. Hence, these assets are depreciated over their useful life and not amortized.

    Example of Depreciating tangible asset:  A manufacturing company bought machinery for Rs 8,10,000 and its estimated life is 8 years, scrap value being Rs 10,000.

    The depreciation to be written off will be

    Yearly Depreciation = Cost of machinery – Scrap value / Expected life of the asset.

    = 8,10,000 – 10,000 / 8

    = 8,00,000 / 8

    = Rs 1,00,000 every year.

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Astha
AsthaLeader
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  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    Journal Entry for Interest on Drawings is- Particulars Amount Amount Drawings A/c                                                      Dr $$$      To Interest on Drawings A/c $$$ So as per the modern approach: From the point of view of business, Interest on Drawings is an Income. When there is an inRead more

    Journal Entry for Interest on Drawings is-

    Particulars Amount Amount
    Drawings A/c                                                      Dr $$$
         To Interest on Drawings A/c $$$

    So as per the modern approach: From the point of view of business, Interest on Drawings is an Income.

    • When there is an increase in the Income, it is credited.
    • When there is a decrease in the Income, it is debited.

     

    From the point of view of the proprietor, Interest on Drawings is a Liability.

    So as per the modern approach:

    • When there is an increase in the Liability, it is credited.
    • When there is a decrease in the Liability, it is debited.

     

    So as per the modern approach,  Interest on Drawings is credited because with Interest the income increases for the business. Whereas,  the amount of such interest is a loss from the point of view of the owner/ Proprietor, as such the amount of drawings is increased by the amount of interest and hence the Drawings account is debited.

    For Example, Harry charged interest on drawings on Rs 10,000 @ 12% for one year.

    Explanation:

    Step 1: To identify the account heads.

    In this transaction, two accounts are involved, i.e. Drawings A/c and Interest on Drawings A/c.

    Step 2: To Classify the account heads.

    According to the modern approach: From the point of view of business,  Interest on Drawings is a Revenue A/c and Drawings A/c is an Expense A/c.

    Step 3: Application of Rules for Debit and Credit:

    According to the modern approach: As Revenue increases because of interest on drawings received by the business, Interest on Drawings A/c will be Credited. (Rule – increase in Revenue is credited).

    Drawings A/c is an expense account for the business and as expense increases, Drawings A/c will be debited. (Rule – increase in the expenses is debited).

    So from the above explanation, the Journal Entry will be-

    Particulars Amount Amount
    Drawings A/c                                                      Dr 1,200
         To Interest on Drawings A/c 1,200

     

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Jayesh Gupta
Jayesh GuptaCurious
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If someone can tell me the complete accounting with the percentage that would be great.

  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    I am assuming that you are asking the question with reference to the sole proprietorship business. In the case of a company, the rates as per the Companies Act, 2013 will apply. A sole proprietor can charge the depreciation in its books of accounts at whatever rate it wants but it should not be moreRead more

    I am assuming that you are asking the question with reference to the sole proprietorship business. In the case of a company, the rates as per the Companies Act, 2013 will apply. A sole proprietor can charge the depreciation in its books of accounts at whatever rate it wants but it should not be more than the rates prescribed in the Income Tax Act, 1961.

    It is a general practice to take depreciation rate lower than the Income Tax Act, 1961, so that the financial statements look good because of slightly higher profit. There is no harm in it as it is a sole proprietor.

    The Income Tax Act, 1961 has prescribed rates at which depreciation is to be given on different blocks of assets. For motor vehicles, the rates are as follows:

    Particulars Rates (WDV)
    1 Motor buses, motor Lorries and motor taxis used in a business of running them on hire. 30%
    2 Motor buses, motor lorries and motor taxis used in a business of running them on hire, acquired on or after the 23rd day of August 2019 but before the 1st day of April 2020 and is put to use before the 1st day of April 2020. 45%
    3 Commercial vehicles to use in business other than running them on hire. 40%

    Let’s take an example to understand the accounting treatment:-So a business can choose to charge depreciation at rates slightly lower than the above rates.

    Mr A purchased a lorry for ₹1,00,000 on 1st April 2021 for his business, to be used for transportation of the finished goods. Now, Mr A decided to charge depreciation on the WDV method @30% (prescribed rate is 40%).

    Following will be the journal entries.

    I hope I was able to answer your question.

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