Provisions affecting accounting treatment
The partnership deed is usually very elaborate. It covers all matters affecting the partnership business. However, in the absence of any provision to the contrary in the partnership deed/agreement, the following provisions govern the accounting treatment of certain items:
1. Right to share profits: Partners are entitled to share equally in the profits earned and to contribute equally to losses incurred.
2. Interest on capital: No interest is payable on the capitals contributed by them. Similarly no interest is to be charged on drawings. However, where partnership agreement provides for payment of interest on capital, such interest is payable out of profits of the business unless otherwise provided.
3. Interest on advances: A partner who makes an advance of money to the firm beyond the amount of his capital for the purpose of business, is entitled to get interest thereon at the rate of 6% p.a.
4. Right to share subsequent profits after retirenent: Where any member of a firm has died or otherwise ceased to be a partner and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them, the outgoing partner or his estate is entitled, at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent per annum on the amount of his share in the property of the firm.
5. No remuneration for firm’s work: A partner is required to attend diligently to his duties in conducting the business of the finn. He has no right to receive remuneration or salary for taking part in the conduct of the business.