What happens if there is no partnership deed?

The Indian Partnership Act 1932 applies: no interest on capital, no salary to partners, profits and losses shared equally, and interest on any loan given by a partner to the firm is 6% per annum.

What is the difference between fixed and fluctuating capital methods?

Under fixed capital, each partner has two accounts: Capital A/c (only permanent capital changes) and Current A/c (IOC, salary, drawings, profit share). Under fluctuating capital, all entries are recorded in a single Capital A/c which changes each year.

Why is interest on drawings added back to divisible profit?

Interest on drawings is charged to partners (debit their capital/current accounts) and is credited to Profit & Loss Appropriation Account — it is income for the firm. This increases the profit available for distribution among all partners.

Partnership Accounts — Fundamentals

Accounting for Partnership • Class 12 Accountancy • NCERT • CBSE

Partnership: agreement between 2-50 persons to carry on business for profit. Fixed capital: separate current account maintained. Fluctuating capital: all entries in one capital account. Profit & Loss Appropriation Account distributes profit among partners.

Key Formulas

Interest on Capital = Capital × Rate × Time/12
Interest on Drawings (regular) = Total Drawings × Rate × Average months/12

Frequently Asked Questions

What happens if there is no partnership deed?: The Indian Partnership Act 1932 applies: no interest on capital, no salary to partners, profits and losses shared equally, and interest on any loan given by a partner to the firm is 6% per annum.
What is the difference between fixed and fluctuating capital methods?: Under fixed capital, each partner has two accounts: Capital A/c (only permanent capital changes) and Current A/c (IOC, salary, drawings, profit share). Under fluctuating capital, all entries are recorded in a single Capital A/c which changes each year.
Why is interest on drawings added back to divisible profit?: Interest on drawings is charged to partners (debit their capital/current accounts) and is credited to Profit & Loss Appropriation Account — it is income for the firm. This increases the profit available for distribution among all partners.

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