The document in writing containing the various terms and conditions as to the relationship of the partners to each other is called the 'partnership deed1.
Rules applicable In the absence of an agreement in partnership:
In the absence of an agreement to the contrary, the following rules are applicable: 1. The partners shall share equally the profits and losses.
A partners shall be entitled to interest at the rate of six per cent per annum on the loan advanced by him to the firm.
A partner is not entitled to any salary for taking part in the conduct of the business.
No partner is entitled to interest on the capital.
No interest on drawing is to be charged by the firm.Fluctuating capitals:
When the capitals of Ac partners are fluctuating, all adjustments with regard to the interest on capitals, interest on drawings, partners salaries etc. are passed through the capital accounts of partners.
Fixed capitals:
In such a case the capitals of the partners are credited with the actual contributions of the partner towards their capitals and balanced at the same figure from year to year. In such a case all the adjustments are passed through current 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 years multiplied by an agreed number is considered to be the value of goodwill.
Normal profits:
The normal profits are calculated by multiplying the average capital employed with the rate of general expectation.
Super profits:
Super profits 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.
Capitalized method for valuation of goodwill:
In this method, the whole value of business is calculated by capitalization the average or actual profits by the following formula:
Actual profits Normal rate of return
The net assets of the firm are deducted from the value of business as calculated above to find out the value of goodwill.
Rules applicable In the absence of an agreement in partnership:
In the absence of an agreement to the contrary, the following rules are applicable: 1. The partners shall share equally the profits and losses.
A partners shall be entitled to interest at the rate of six per cent per annum on the loan advanced by him to the firm.
A partner is not entitled to any salary for taking part in the conduct of the business.
No partner is entitled to interest on the capital.
No interest on drawing is to be charged by the firm.Fluctuating capitals:
When the capitals of Ac partners are fluctuating, all adjustments with regard to the interest on capitals, interest on drawings, partners salaries etc. are passed through the capital accounts of partners.
Fixed capitals:
In such a case the capitals of the partners are credited with the actual contributions of the partner towards their capitals and balanced at the same figure from year to year. In such a case all the adjustments are passed through current 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 years multiplied by an agreed number is considered to be the value of goodwill.
Normal profits:
The normal profits are calculated by multiplying the average capital employed with the rate of general expectation.
Super profits:
Super profits 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.
Capitalized method for valuation of goodwill:
In this method, the whole value of business is calculated by capitalization the average or actual profits by the following formula:
Actual profits Normal rate of return
The net assets of the firm are deducted from the value of business as calculated above to find out the value of goodwill.
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