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DRAWINGS Drawings means the amount withdrawn by partners for their personal use. It may be in the form of cash or kind. These are shown always on the Debit side of the Partner’s Capital Account. It may be out of capital or against profit. Drawing out of capital means withdrawal of part of capital while…
MEANING Capital Account is a personal account for each proprietor. In case of partnership firm there is a separate Capital Account for each partner. The capital contributed by each partner will be credited to the respective Partner’s Capital Accounts. METHODS TO MAINTAIN PARTNER’S CAPITAL ACCOUNT There are basically two methods to maintain Partner’s Capital Accounts…
Profit and loss Appropriation account is an extension of Profit and Loss account. All the appropriations i.e. the distributions payable to the partners as per partnership deed are recorded in this account. This account is credited with the amount of net profit and debited with the amount of net loss. The debit side of this…
Partnership Deed is an agreement drafted by the partners that govern the partnership business. Partnership deed may be in oral or writing. But it is preferable to draft the deed in written form so that it can serve as a proof in case of any legal consequences. Partnership deed is a legal document. It is…
AVERAGE PROFIT Average profit is the average of all the agreed profits of past years. It is calculated by dividing the total profits by the number of years. This is the most common method of calculating goodwill. AVERAGE PROFITS= Total Profits/ Number of years A buyer always wants to estimate the future profits of the…
It is very difficult to assess the value of the goodwill, as it is an intangible asset. In case of a sale of a business, its value depends upon the mutual agreement between the seller and the purchaser of the business. Usually there are three methods to calculate goodwill which are as follows: AVERAGE PROFITS…
MEANING Goodwill means the ‘Good-Name’ or the reputation of the firm. The management and employees earn this by their hard work and honesty. It is like a magnet that attracts the customers towards the business. It helps in earning higher profits in comparison to the normal profits earned by the other firms in the same…
PARTNERSHIP BUSINESS PARTNERSHIP BUSINESS is a business where two or more persons agree to carry on commercial activity to earn profits. From legal point of view, partnership firm is not a separate legal entity. In other words, it has no existence separate from its partners. It means that in case of bankruptcy of partnership firm,…
