Core concepts
- 01Partnership: relation between persons who agree to share profits of a lawful business.
- 02Indian Partnership Act 1932 governs; in absence of deed — equal profit, no interest on capital, 6% p.a. on loan.
- 03Goodwill = excess earning capacity; valued at admission, retirement, death.
- 04Capital methods: Fixed (Capital + Current A/c) or Fluctuating (one A/c).
- 05P&L Appropriation A/c distributes profit (interest on capital, salary, share).
Flowchart summary
Partnership Events | +-- Admission ----> Goodwill / Revaluation +-- Retirement ---> Settle dues, gaining ratio +-- Death --------> Up-to-date P&L share +-- Dissolution --> Realisation A/c
Exam-critical pointers
- ⭐Hidden goodwill at admission = (Total Capital implied by new partner − Combined adjusted capitals).
- ⭐Joint Life Policy treatment depends on method (Surrender Value vs Premium expensed).
- ⭐On dissolution: realise assets, pay liabilities, settle partners (Garner v. Murray for insolvency).
- ⭐Interest on partner's loan is a charge (P&L), not appropriation.
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