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Partnership is the result of an agreement. The agreement among the partners that sets out the terms on which they have agreed to form a partnership firm is called partnership deed. It may be in writing or by words of mouth or be implied from the course of conduct of the parties.
It is desirable to have the partnership deed in writing to avoid future disputes. The document in writing containing the various terms and conditions as to the relationship of the partners to each other is also called the ‘partnership agreement’. The following clauses are normally included in partnership agreement.
1. Name under which business of the firm is to be carried on.
2. Nature of partnership firm business.
3. The capital of the firm and the proportion in which it is to be contributed by each partner.
4. Ratio in which profits and losses are to be shared by partners.
5. Rate at which interest is to be allowed on the capital and charged on the drawings.
6. Amount, which each partner is allowed to withdraw in anticipation of, profits from the business for private expenses and the timing of such drawings.
7. Amount of salaries and other allowances if any payable to partners.
8. Commencement and duration of partnership firm.
9. Whether the capital accounts are to be fixed or fluctuating.
10. Valuation of goodwill at the time of retirement or death of a partner.
11. The method of ascertaining the amount due to the retiring partner or the representative of a deceased partner at the time of retirement or death and the manner in which the amount due will be paid.
12. Keeping of proper books of accounts and preparation of balance sheet.
13. Audit of the accounts of the firm and the manner of appointment of auditor.
14. Right and duties of partners.
15. Arbitration clause, laying down the procedure to be followed for the settlement of disputes among the partners.
>> Read Current Assets
Partnership MCQs (II)
Profit and Loss Appropriation Account
Admission of a Partner Problems
Mukharji, A., & Hanif, M. (2003). Financial Accounting (Vol. 1). New Delhi: Tata McGraw-Hill Publishing Co.
Narayanswami, R. (2008). Financial Accounting: A Managerial Perspective. (3rd, Ed.) New Delhi: Prentice Hall of India.
Ramchandran, N., & Kakani, R. K. (2007). Financial Accounting for Management. (2nd, Ed.) New Delhi: Tata McGraw Hill.