A partnership form of business organisation is quite similar to a sole proprietorship form of business, but there are certain exceptions to this form of business organization that needs to be taken into consideration while preparing accounts for the partnership firms.
These exceptions are referred to as special aspects of partnership accounts and are as follows:
- Maintenance of Partners Capital Accounts
- Distribution of Profit and Loss among the partners.
- Adjustment for Wrong Appropriation of Profit
- Reconstitution of the Partnership Firm
- Dissolution of the Partnership Firm
Maintenance of Partners Capital Accounts
In a partnership business, the capital accounts are maintained by two different methods which are (a) Fixed Capital Method and (b) Fluctuating Capital Method.
In fixed capital method, two accounts are maintained which is capital account and current account, while in the fluctuating capital method only capital account is maintained.
Distribution of Profit and Loss Among Partners
The distribution of profit and loss needs to be done carefully as there are more than one individual involved in the partnership business. For this purpose, a Profit and Loss Appropriation Account is prepared.
Adjustment for Wrong Appropriation of Profit
One of the special aspects of partnership is the adjustment of partnership accounts whenever there is any adjustment or correction that needs to be made for any events in the past. It may happen that profit was shared in the wrong ratio between partners in the past, in such case the firm makes adjustments to perform rectification of the error.
Reconstitution of the Partnership Firm
Reconstitution is referred to as the changes that occur in terms of partnership or in the partnership deed which leads to creation of new terms of agreement between the partners.
Following situations lead to the reconstitution of partnership firm:
- Admission of a new partner
- Retirement of a partner/ Death of a partner
- Insolvency of a partner
Dissolution of Partnership Firm
Dissolution of Partnership firm refers to winding up of the partnership business which leads to termination of all relationships between the firm and its partners.
This concludes the article on the topic of Special Aspects of Partnership Accounts, which is an important topic for Class 12 Commerce students. For more such interesting articles, stay tuned to BYJU’S.