Meaning

Partnership deed is a written agreement among the partners containing the terms and conditions of partnership. It must contain the following terms from accounting point of view; otherwise the provisions of Indian Partnership Act 1932 become applicable. These are:

   Points                                                                             Deed                 No Deed  

  1. Profit sharing ratio                                             Mentioned             Equal
  2. Salary/commission to a partner                      Mentioned             Not allowed
  3. Interest on capital                                              Mentioned             Not allowed
  4. Interest on drawings                                          Mentioned             Not charged
  5. Interest on partner’s loan                                  Mentioned             6% per annum

 

Example:

X, Y and Z are partners without any partnership agreement with initial capitals of ₹300,000, ₹400,000 and ₹500,000, respectively. The following differences have arisen among them:

(1) X claims profit to be shared on the basis of capital contributions but Y objects.

(2) X claims Interest on capital at 10% p.a.

(3) X spends extra time to the business for which he wants a salary of ₹ 1,000 p.m.

(4) Y wants to admit his nephew P to this partnership but X does not agree.

(5) Z has given a personal loan of ₹ 2,000 to the firm for which he wants an interest. Y does not agree.

You resolve the issues and give your comments.

Solution:

Since there is no agreement, provisions of Indian Partnership Act 1932 will apply:

(1) X is wrong. Profit must be shared equally among all the partners.

(2) X is wrong. No interest on capital is to be allowed in this case.

(3) X, again is wrong. No salary is to be allowed to X in this case.

(4) Here, Y can admit his nephew only with the consent of X and Z both.

(5) Y cannot object to the payment of interest on loan, Z must be given an interest at 6% p.a.

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