Basics of Partnership Accounting
Mrs. A: What are you thinking about?
A: I am thinking about our shop.
Mrs. A: Is something wrong?
A: No, nothing wrong. But I am thinking about expanding it and we have full chances of its success even if we expand it.
Mrs. A: So, What is the problem then?
A: Problem is that I am not able to handle it all alone . If I appoint someone for a part of work, I will have to take care of him also. There will always be chances of misappropriation and poking in all the affairs of the business. He would tell all the secrets of our business to others.
Mrs. A: But, try to understand, your work will also be shared. You can save that time and energy and concentrate on important work only, you give him routine work only.
A: But, he will always be curious to know the amount of profit and would demand his share because of his efforts.
Mrs. A: Let me suggest something, My friend's brother has no stable job. If I talk to her about this and ask her brother to join you and bring money for our business, it can be fine for both of the families.
A: It can be fine, but there are chances of disputes , because of money.
Mrs. A: You get everything in writing. You may enter into written agreement with him, after fixing the terms and conditions.
A: Ok, You invite them to our place, we'll talk about this.
Both the families had a discussion and friend's brother B agreed to join A for business.
A clearly stated that profit earned will be given on the basis of his amount given for business, to which B agreed.
B : How much amount should I bring for joining you?
A: Whatever amount you want to invest plus ₹20,000 .
B: Why this extra amount?
A: I have been in this business for three years and I have established a name and links with various parties. for that, this extra amount.
B: That is difficult. I don't have that much money.
A: We can adjust that from your main amount.
B: Ok.
They continued their business for a year. Then C expressed his willingness to join them.
C to A: I would like to join your business.
A: I'll ask B. If he agrees, It would be fine. By the way, how much amount will you bring for business?
C to A: I can spare ₹5,00,000.
A to B: C also wants to join us. He will bring ₹5,00,000
B to A: Ask him to give something more, this business has been there for so many years, and he will be taking the benefit of all this. Moreover, we have some profits appearing in our balance sheet also.
A to B: We'll share that before C joins. We'll also be getting all the assets and liabilities revalued before his joining the business.
A and B agreed on these points and inform C for the same. C agreed to pay ₹40,000 besides the main amount and expressed to get one third share of profits in future. A and B agreed to this and many more terms and conditions. They get it made in written form, in legal manner.
Now, A, B and C continued to run business.
One day, B expressed his willingness to leave this business to go abroad. A and C asked B to pay his dues in installments as paying the whole amount would lead to a financial setback along with already apparent managerial setback. B agreed.
How much B should get on his leaving the business?
The teacher can clear the following terms used in Partnership Accounting while discussing/dramatizing the above:
Partnership, Partnership Deed, Admission of a partner, Retirement of a partner, Goodwill, Goodwill paid in cash/kind(Premium for Goodwill), Revaluation of assets and liabilities etc.
It can be further extended to explain guarantee, death etc. also.
Accounting for Partnership Made Easy (Comic)