TOPICS:- PARTNERSHIP PARTNERSHIP INTEREST ALLOWANCE ON PARTNER’S CAPITAL WITH REMAINDER IN A FIXED RATIO. INTEREST ALLOWANCE ON PARTNER’S CAPITAL WITH REMAINDER IN A FIXED RATIO.MEMBERS: 1)KAILASH KUMAR (113) 2)FARAZ ALI (187) 3)HAIDER KHAN (086) 4)NAEEM TARANI (212) 5)USMAN HAMID (140)

 A partnership is an unincorporated business owned by two or more partners.  It is also referred as a FIRM.  According to accounting principles, it is a separate entity but according to laws, it is not a separate entity.  Partnership has LIMITED LIVES as well as CONTINUITY OF EXISTANCE.

 Assets of business actually belong to all the partners.  Each partner has unlimited personal liabilities for all the debts of business, unless special provision are made.  Partnership itself pays no income tax.  Business pays no salary for services provided by partners to organization.

 The term partnership includes three different types of organizations. 1) GENERAL PARTNERSHIP 1) GENERAL PARTNERSHIP 2) LIMITED PARTNERSHIP 2) LIMITED PARTNERSHIP 3) LIMITED LIABILITY PARTNERSHIP 3) LIMITED LIABILITY PARTNERSHIP

 Each partner has rights and responsibilities equally as a sole proprietor.  This concept is also called “MUTUAL AGENCY”.  It includes same unlimited personal liabilities as a sole proprietorship.  General partnership is potentially a dangerous form of business organization.

 It includes one or more general partners and one or more limited partners.  Limited partners are those who only have share in the profits and losses of the business.  They do not participate in management of the business.  They are not personally liable for the debts of the business.  They can include their share of partnership in their personal income tax return.

 Each partner has unlimited personal liabilities for his/her own professional activities.  They also participate in the management of the business.

 The separate capital accounts and drawing accounts are maintained for each partner.  The amount paid to partner’s is recorded in the partner’s drawing account.  The statement of owner’s equity is replaced by the “STATEMENT OF PARTNER’S EQUITY”.

 Each partner’s share of net income (loss) is credited (debited) in partner's capital account.  It does not include distribution of cash or other assets to it’s partners.  The partners pay income tax on the amount of partnership income, not on the amount of assets withdrawn.

 It is an agreement among the partners as to their rights and responsibilities.  It ensures the responsibilities of each partner, allocation of net income, amount of assets that the partners are allowed to withdraw etc.

The net income of a partnership should compensate. The net income of a partnership should compensate. 1) Personal services rendered 1) Personal services rendered 2) Invested capital 2) Invested capital 3)Risks of the owner 3)Risks of the owner

This method tells us how the amount of net income is divided among its partners. This method tells us how the amount of net income is divided among its partners.  The amount of net income (losses) is divided equally among its partners.  Firstly the amount is divided among its partners as the interest on the amount of capital invested by them.  The percentage of Interest is decided among the partners before the agreement begins.  The remaining amount of net income is divided equally among its partners in a fixed ratio.

Suppose that HAIDER and FARAZ (partners), decided the interest of 15% on their capital investment and remaining will be distributed in a fixed ratio among them. The amount of net income to be divided is 96,000. The beginning capital investment of HAIDER is 160,000 and of FARAZ is 40,000,then the division of partnership net income will be in this way; Suppose that HAIDER and FARAZ (partners), decided the interest of 15% on their capital investment and remaining will be distributed in a fixed ratio among them. The amount of net income to be divided is 96,000. The beginning capital investment of HAIDER is 160,000 and of FARAZ is 40,000,then the division of partnership net income will be in this way;

DIVISION OF PARTNERSHIP NET INCOME HAIDER FARAZ NET INCOME HAIDER FARAZ NET INCOME NET INCOME TO BE DIVIDE INTEREST ALLOWANCE ON BEGINNING CAPITAL; HAIDER (160000*15%) FARAZ (40000*15%) 6000 TOTAL AMOUNT OF INTEREST (30000) REMAINING INCOME AFTER INTEREST ALLOCATED IN FIXED RATIO HAIDER (50%) HAIDER (50%) FARAZ (50%) TOTAL (66000) TOTAL SHARE TO EACH PARTNER