PARTNERSHIP ACCOUNTS-PROFIT DISTRIBUTION/ADMISSION OF A PATNER/RETIREMENT AND DEATH/DISSOLUTION OF THE FIRM

Partnership:
According to partnership act 1932, "the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all".

Essential of partnership:

The following are the essential elements of partnership:

1. There must be an agreement entered into by all person concerned.
2. The agreement must be to share the profit of a business.
3. The business must be carried on by all or any of them acting for all.

Partnership agreement:

The agreement among the partners which sets out the terms on which they have agreed to form a partnership is called partnership agreement.


Fluctuating capital:When the capitals of the partner are fluctuating, all adjustment with regard to the interest on capitals, interest on drawing, partners salaries etc. are through the capital accounts of partners.

Goodwill:

The benefit and advantage of the good name or reputation of a business. It is the attractive force which brings in customers.

Average profit method for valuation of goodwill:

According to this method, the average profit of given number of past year multiplied by an agreed number is considered to be the value of goodwill.

Normal profit:

The normal profits are calculated by multiplying the average capital employed with the rate of general expectation.

Super profits:

Super profit is the excess of actual profits over normal profits.

Super profits method for valuation of goodwill:

Under this method super profits is multiplied by an agreed figure to find the value of goodwill.

Premium method for treatment of goodwill:

• The amount of goodwill is paid privately by the incoming partner to the old partners.
• The value of goodwill attributable to incoming partner's share of profit is brought in cash and the amount is retained in the business.
• The value of goodwill attributable to incoming partner's share of profit is brought in cash and the amount is withdraw by the old partners.

Revolution method for treatment of goodwill:

Under this method, the incoming partner does not bring in the amount of goodwill in cash, but a goodwill account is raised in the books at full value.

Revaluation account:

It is prepaid at the time of admission, retirement or death of a partner for increase or decrease in the value of assets and liability. In the case of revolution account the assets and liability are shown in the new balance sheet at the revalued figures.

Memorandum revolution account:

It is prepaid at the time of admission, retirement or death of a partner, If the partners agree to keep the book values of assets and liabilities uncharged or unaltered.

Dissolution of the firm:

According to the partnership act 1932, the dissolution of the partnership between all the partners of a firm is called dissolution of firm.

Distinction between dissolution of the firm and dissolution of partnership:

The dissolution of partnership does not necessarily involve dissolution of the firm, whereas dissolution of the firm involves dissolution of partnership also.

Dissolution by agreement:

A firm may be dissolved with the consent of all the partners in accordance with a contract between the partners.

Compulsory dissolution or dissolution by the operation of law:
A firm is compulsory dissolved:
(a) By the adjudication as insolvent of all partners or of all the partners but one, or,
(b) By the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership.

DEPRECIATION, PROVISIONS AND RESERVES

Depreciation:
Depreciation may be defined as the permanent and continuous diminution in the quality, quantity or value of an asset.

Internal depreciation:

Depreciation which occurs for certain inherent normal causes, is known as internal depreciation. Such as wear and tear and depletion.

External depreciation:

Depreciation caused by some external reason is called external depreciation. Such as obsolescence, efflux of time and accident.

Wear and tear:

The change in the shape of an asset due to use in business is known as wear and tear.

Depletion:

The decrease in the value of proportionate to the quantum of production e.g. mines, quarries, oil wells, forests etc.
                                                                OR
Decrease in the value of wasting assets is called depletion.

Obsolescence:

The decrease in the value of an asset due to new invention, change in habit and taste of people, improvements is known as obsolescence.

Fluctuation:

The decrease or increase in the market value of asset not due to use in business is known as fluctuation.

Cost price of an asset:

It include all expenses involved in carrying and installing the asset to the site.

Working life of an asset:

The period during which an asset will help earning income of business.

Scrap value of an asset:

The price at which an asset will be sold at the end of its working life. It is also known residual value or break up value.

Market price of an asset:

The price at which an asset can be sold in the market is called mark price.

Fixed installment method of depreciation:

Under this method depreciation of an asset will be equal in each accounting year.

Reducing balance method:

Under this method depreciation is calculated on the book value of an asset.

Amortization:

The decrease in the value of intangible asset such as patents, copy right, goodwill etc.

Fixed assets:

Assets which have long life and which are bought for use for a long period of time are called fixed assetss. These are not bought for selling purpose e.g. land, building, machinery, furniture etc.

Tangible assets:

Assets which have physical existence and which can be seen, touched and felt are called tangible assets e.g. building, machinery, furniture etc.

Intangible assets:

Assets which have no physical existence and which cannot be seen, touched but can be felt are called intangible assets e.g. goodwill, patent right, trade mark etc.

Wasting assets:

Assets whose value gradually reduces on account of use and finally exhausts completely are called wasting assets, e.g. mine, forests etc.

ACCOUNTS OF JOINT STOCK COMPANIES

Join stock company:
A join stock company may be defined as an artificial person recognized by law,with a distinctive name, a common seal,a common capital comprising transferable shares carrying limited liability and having a perpetual succession.

Separate legal entity of company:
It means the company is distinct from the person forming it. It enjoys many of the right of artificial person, e.g. it can sue or be sued in its name. It can own and transfer the title of property.

Perpetual existence of company:

It means a joint stock company has a continuous life.The shareholders can come or go, but the existence of a company cannot effected. It can be winded up through compliance with the provision of companies ordinance 1984.

Common seal of a company:

Common seal is used as a substitute of signature because company is an artificial person and cannot sign itself.It is also called official signature of company.

Company limited by shares:

In a company limited by shares, the capital is divided into a number of shares. The shares can be freely transferred and sold. The liability of the members is limited to the amount if any, unpaid on shares held by them.

Private limited company:

According to the companies ordinance 1984 it can be formed.
(a) At least by two persons and its total membership cannot exceed 50.
(b) The company by articles restricts the right to transfer it shares.
(c) It prohibits any invitation to the public to invest their money in shares or debentures of the company.

Company limited by guarantee:
(a) It can be formed by at least seven members and there is no limit to maximum members.
(b) It can invite application from investor through advertisement in the news paper.

Unlimited company:
A company in which liability of its members is limited to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.

Unlimited company:
A company in which liability of its members is unlimited. Every member of the company is personally liable to the full extent of his personal assets for the full debts of the company.

Association not for profit:
It enjoys all the privileges of a limited company without using the word limited or private limited. it is mainly formed for the promotion of commerce, art, charity, etc.

Memorandum of association: 
It is the basic document of the company. it contains the fundamental condition upon which alone a company can be incorporated. It sets out the limits outside which the action of the company cannot go.

Article of association:
It is second important document in the incorporation of a company. It contains the rules and regulation for the internal management of the company.

Prospectus:
It is a valuable document issued by the company for raising of the capital.

Shares:
The total amount of capital of a company is divided into smaller units. These units are called shares.

Share capital:
The total capital is divided into a large number of shares. The sum or total of the par value of shares of a company is called share capital.

Authorized capital:
The amount of capital with which the company is registered. It is also known as nominal capital or registered capital.

Issued capital:
shares offered to the general public for contribution are known as shares issued. The total par value of such shares is called issued capital.

Called up capital:

The portion of subscribed capital which is called up by the company from public is called called up capital.

Paid up capital:
The total amount received by the company out of the total called up amount is known as paid up capital.

Reserve capital:
It is the portion of the subscribed capital which the company, through a special resolution, reserves to call in the event of winding up.

Par value of share:
The value which is assigned to a unit of share is called par value of share. It is also known as nominal value or face value.

Mortgage debentures:
Those debentures which are secured by a fixed or floating charge on the assets of the company.

Debenture stock:
Debenture stock is one or more series of debentures consolidated, each stock-holder being entitled to such proportion of the whole amount as i.e., represented by his stock certifications.

CONSIGNMENT ACCOUNT

Consignment:
Consignment is an act of sending the goods by the owner to his agent, who agrees to collect, store and sell them on the risk and behalf of the owner on commission basis.

 Consignor:
The manufacture or wholesaler who sends his goods for sale purpose to his agent is known as consignor.

Consignee:
The person to whom the goods are sent for sale purpose is known as consignee.

Consignment outward:
When goods are dispatched by the consignor to consignee, it will be consignment outward from consignor's view point.

Consignment inward:
When goods are dispatched by the consignor to consignee, it will be consignment outward from consignee's view point.

Proforma invoice:
It is a forwarding letter sent by consignor to consignee along with the goods containing particulars as to the name of the item; number and the price.

Commission:
In connection with the consignment, the remuneration of the consignee for selling the goods of the consignor is called commission.

Delcredre commission:
The extra commission which is paid to consignee, if loss on account of bed debts is borne by him.

Abnormal loss of stock:
Any loss which occurs due to fire, accident, theft, negligence etc is known as abnormal loss of stock. Due to this loss consignment profit is not reduced.

Normal loss of stock:
A loss which occurs due to natural causes e.g. normal leakage, loss in weight due to nature of goods etc. is treated as 'normal loss'. such loss inflates the value of closing stock.

Overriding commission:
It is normally granted by consignor when he desires to work hard to push a new line of product in the market.

Consignment account:
This is by nature a profit and loss account. All expenses related to consignment are debited and all revenue are credited to this account. The deference between the two sides is known as profit or loss on consignment.

The Accounting Of Non-Profit Making Organizations

Non-Profit Making Organization:
Non-Profit making organization are those, which do not buy/manufacture and sell goods and whose primary object is not to earn profit. Their object is to do goods to the society through welfare activities; e.g. clubs, school, colleges, hospitals, libraries etc.

Receipts And Payments Account:
A receipts and payments account is a summarized cash book for a given period.

Income And Axpenditure Account:
The account through which surplus or deficit of a non-profit marking organization is ascertained, is called income and expenditure account.

Subscription:
The amount received from the members of organization monthly or annually as per rules is called subscription.

Admission fee:
The amount which is paid by a new member at the time of admission in addition to subscription is called admission fee.

Legacy:
Legacy refers to property received by a virtue of a will of a person after his death. Acquisition of such property by an institution is regarded as capital receipt.

Life Membership Fee:
The amount which is paid by members lump sum to become a life member of organization is called life membership fee.

Donation:
Amount received from members and general public by way of gift is known as donation. It is to be treated as capital or revenue depends upon the purpose for which the donation is collected.

Capital Fund:
Excess of total assets over total external liabilities of a non-profit seeking organization is called capital fund. it is also known as general fund, accumulated fund or surplus fund. 

Accounting From Incomplete Records

Single Entry System:
Single entry system consist of the following book-keeping records.
(a) A day book or general journal
(b) A cash book
(c) Ledger accounts for individual customers and creditors.

Double Entry System:
A system in which two sides of every transaction are recorded.

Statement Of affairs:
Statement of affairs is a short of balance sheet having assets on left side and liabilities and capital on the right side under single entry system.

Increase net worth method:
The method in which adjusted capital at the end and capital in the beginning are compared to ascertain the profit or loss under single entry system.