part-A : Accounting For Not-For-Profit Organizations,
Partnership Firms And Companies
UNIT-1 : Financial Statements of Not-For-Profit Organizations
CHAPTER-1
non-for-profit organizations
Revision Notes
Meaning of Not-for-Profit Organizations : The main purpose of any business organization is to earn profit.
In other words, they work for self-interest. However, there are some organizations whose basic aim is to serve
the society i.e., they work for the benefit of the society as a whole. These organizations are called Not-for-Profit
Organizations.
Features of Not-for-Profit Organization : The basic features of any non-profit organization are as under :
(i) Service motive, e.g., Indus trust is a NPO that works on education of under privileged community.
(ii) Profit is not the objective.
(iii) Surplus not distributed among its members.
(iv) Separate entity.
(v) Unique names connoting their working.
(vi) Managed by elected persons.
(vii) Major funds in the form of contribution and donations, etc.
The books of accounts generally maintained by every Not-for-Profit Organizations are :
(i) Cash book;
(ii) Ledger;
(iii) Member’s register;
(iv) Register of assets.
The final accounts of Not-for-Profit Organization consists of :
(i) Receipts and Payments Account;
(ii) Income and Expenditure Account;
(iii) Balance Sheet.
Know the Terms
Endowment : It is a donation with a condition by the donor to use only the income earned from investment of
such fund for the specified purpose so that the original donated amount remains intact.
Loan fund : It is set up to grant loans for specific purpose e.g. to pursue higher studies.
Legacy : It is the amount received as donation by not for profit organization under the will of a deceased person.
Subscription : It is the amount paid by the members periodically so that their membership continues.
Honorarium : It is a payment made to a person who has voluntarily undertaken a service which would normally
command a fee. It is an expression of gratitude rather than a payment for the services.
qq
,2 ] Oswaal CBSE Chapterwise & Topicwise Revision Notes, accountancy, Class – XII
UNIT-2 : Accounting for Partnership Firms
CHAPTER-2
basics of partnership
Topic-1
Concept of Partnership
Revision Notes
Meaning of Partnership : According to Indian Partnership Act, 1932 ''Partnership is 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.” The Act also
explains that persons who have entered into partnership with one another are individually called “partners” and
collectively “a firm.”
Characteristics of Partnership :
(i) A
ssociation of two or more than two persons : It is essential for the Partnership that there must be at least
two persons who are competent for agreement because less than two persons does not establish partnership.
(ii)
Maximum numbers of partners : Rule 10 of Company (Miscellaneous) Rules, 2014 says that no association of
partnership shall be formed, consisting of more than 50 persons for the purpose of carrying on any business.
(iii) Existence of an agreement : Partnership is the outcome of an agreement between two or more persons to
carry on business. This agreement may be oral or in writing. The Partnership Act, 1932 (Section 5) clearly
states that “ the relation of partnership arises from contract and not from status.”
(iv) E
xistence of business : Partnership Act, 1932 [ Section 2 (6) ] states that a “ Business” includes every trade,
occupation and profession. Business of course, must be lawful and its main object should be to earn profit.
Topic-2
Partnership Deed
Revision Notes
Partnership Deed
According to Section 5 of the Indian Partnership Act, 1932, Partnership Deed is an agreement between two or
more than two partners for determining their mutual contractual relationship and its limitation for better and
effective operation of business. It contains rules and conditions for operation of business. It can be registered or
unregistered. It should be comprehensive to avoid disputes later on.
The document which contains terms of the agreement is called 'Partnership deed.'
Content of Partnership Deed
(i) Name and Address of all Partners
(ii) Name of the Firm
(iii) Nature of the Business
(iv) Capital of the Partners
(v) Interest on Capital
(vi) Drawing by the Partners
(vii) Interest on Drawings
(viii) Profit and Loss Sharing Ratio
(ix) Partner’s Salary and Commission
(x) Method of Valuation of Goodwill
(xi) Settlement on Dissolution of Firm
(xii) Duration of Partnership
,Oswaal CBSE Chapterwise & Topicwise Revision Notes, accountancy, Class – XII [ 3
(xiii) Methods of evaluation of Assets and Liabilities
(xiv) Lending and Borrowing by the Partners
(xv) Admission and Retirement of Partners
(xvi) Duties of Partners
(xvii) Death of a Partner and his legal representative
(xviii) Insurance and its distribution
(xix) Relinquishment of Partnership
(xx) Arbitration Clause
(xxi) Maintenance of Accounts and their Audit
(xxii) Settlement of Disputes of the business
(xxiii) Treatment of loss arising out of insolvency of one or more partners
Different types of Partners in Partnership Firm are given below :
(i) Active Partner : A person who provides his share in capital and also takes active part in the management of
the business. The development of business depends upon the active partners.
(ii) Sleeping or Dormant Partners : These partners only provide capital and also share the profits and losses of
the business. A sleeping partner does not take active part in the management of a firm. These are not known
to public as partners.
(iii) Silent Partner : A silent partner is known to the public as a partner. He does not participate in the affairs of
the management. But he is liable to pay debts of the firm.
(iv) Secret Partner : He takes active part in the business but public does not know him as a partner of the firm.
He is liable to pay all the debts of the firm.
(v) Nominal Partner : These partners do not share the profits and losses of the firm. These partners do not
participate in the management of a firm. A firm only uses the name and reputation of the partners. So these
are called nominal partners.
(vi) Minor Partner : A minor may become a partner with the consent of all the partners. A minor is admitted in
the profits of the business only. He has no liability for losses.
(vii) Senior Partner : A person who is playing an important role in the management according to his ability,
experience and capital is called senior partner.
(viii) Junior Partner : A person who has small investment in the firm and has a limited experience of business is
called junior partner.
(ix) Limited Partner : A partner whose liability is restricted to his share only is called limited partner. He cannot
take part in the management of a firm.
(x) Unlimited Partner : When the liability of the partner is unlimited, he is called unlimited partner. The debts of
firm can be paid even by using the personal property of that partner.
Applicable provisions of the Indian Partnership Act, 1932 in the absence of Partnership Deed :
(i) Interest on partner’s loan will be paid @ 6% p.a.
(ii) If deed is silent regarding interest on capital, no interest on capital is to be allowed.
(iii) If deed is silent regarding interest on drawings or charges on drawings by partners, no interest on drawings
is to be charged.
(iv) If deed is silent regarding salary or remuneration or commission of partners for their services, no salary or
remuneration or commission is to be allowed to any partner.
(v) If deed is silent regarding profit sharing ratio, profit will be distributed equally.
Topic-3
Maintenance of Capital Accounts of Partners
Revision Notes
Methods of Maintaining Capital Accounts of Partners
There are two methods by which the capital accounts of partners can be maintained. These are:
1. Fluctuating Capital : When partners decide to maintain only Capital Accounts for each partner, all entries
regarding Interest on Capital, Interest on Drawings, Salary, Share in Profit or Loss and Drawings will be made
in the Capital Accounts. In this case, Capital will be fluctuating from year to year. This is known as Fluctuating
Capital.
, 4 ] Oswaal CBSE Chapterwise & Topicwise Revision Notes, accountancy, Class – XII
2. Fixed Capital : When partners decide that their capitals will remain fixed and it will not change due to Interest
on Capital, Interest on Drawings, Salary or Share of Profit or Loss and Drawings, it is termed as Fixed Capital. In
this case, there will be two accounts for each partner : Capital Account and Current Account. Entries for Interest
on Capital, Interest on Drawings, Salary, Share of Profit or Loss and Drawings will be made through Current
Account. However when there are frequent drawings, a separate Drawing Accounts may be opened for each
partner. At the end of accounting year, balance of each Partner’s Drawing Account will be transferred to their
respective Current Accounts.
Proforma of Partner’s Capital Account under Fluctuating Capital Method
Partner’s Capital Account
Date Particulars Amount Date Particulars Amount
To Balance b/d By Balance b/d
( in case of debit opening ( in case of credit opening
balance) .............. balance) ..............
To Drawings A/c .............. By Cash/Bank A/c
To Interest on drawings A/c ............. (Additional Capital) ..............
To Profit & Loss A/c By Interest on Capital A/c ..............
(Share in Loss) .............. By Commission A/c ..............
To Balance c/d By Partner's Salary A/c ..............
(Closing Balance) .............. By P&L Appropriation
A/c (Share in Profit) ..............
By Balance c/d
(Closing balance) ..............
Proforma of Partner’s Capital Account under Fixed Capital Method
Partner's Capital Account
Date Particulars Amount Date Particulars Amount
To Cash/Bank A/c By Balance b/d ..............
(Withdrawal of Capital) .............. By Cash/Bank A/c
(Additional Capital) ..............
To Balance c/d ..............
Proforma of Partner’s Current Account under Fixed Capital Method
Partner's Current Account
Date Particulars Amount Date Particulars Amount
To Balance b/d By Balance b/d
(if there is old debit balance) .............. (if there is old credit balance) ..............
To Drawings A/c .............. By Interest on Capital A/c ..............
To Interest on Drawings A/c .............. By Salary A/c ..............
To Profit & Loss A/c By Commission A/c ..............
(Share in Loss) .............. By P&L Appropriation A/c
To Balance c/d (Share of Profit) ..............
(If credit side's total is more) .............. By Balance c/d
(If debit side's total is more) ..............
Partnership Firms And Companies
UNIT-1 : Financial Statements of Not-For-Profit Organizations
CHAPTER-1
non-for-profit organizations
Revision Notes
Meaning of Not-for-Profit Organizations : The main purpose of any business organization is to earn profit.
In other words, they work for self-interest. However, there are some organizations whose basic aim is to serve
the society i.e., they work for the benefit of the society as a whole. These organizations are called Not-for-Profit
Organizations.
Features of Not-for-Profit Organization : The basic features of any non-profit organization are as under :
(i) Service motive, e.g., Indus trust is a NPO that works on education of under privileged community.
(ii) Profit is not the objective.
(iii) Surplus not distributed among its members.
(iv) Separate entity.
(v) Unique names connoting their working.
(vi) Managed by elected persons.
(vii) Major funds in the form of contribution and donations, etc.
The books of accounts generally maintained by every Not-for-Profit Organizations are :
(i) Cash book;
(ii) Ledger;
(iii) Member’s register;
(iv) Register of assets.
The final accounts of Not-for-Profit Organization consists of :
(i) Receipts and Payments Account;
(ii) Income and Expenditure Account;
(iii) Balance Sheet.
Know the Terms
Endowment : It is a donation with a condition by the donor to use only the income earned from investment of
such fund for the specified purpose so that the original donated amount remains intact.
Loan fund : It is set up to grant loans for specific purpose e.g. to pursue higher studies.
Legacy : It is the amount received as donation by not for profit organization under the will of a deceased person.
Subscription : It is the amount paid by the members periodically so that their membership continues.
Honorarium : It is a payment made to a person who has voluntarily undertaken a service which would normally
command a fee. It is an expression of gratitude rather than a payment for the services.
,2 ] Oswaal CBSE Chapterwise & Topicwise Revision Notes, accountancy, Class – XII
UNIT-2 : Accounting for Partnership Firms
CHAPTER-2
basics of partnership
Topic-1
Concept of Partnership
Revision Notes
Meaning of Partnership : According to Indian Partnership Act, 1932 ''Partnership is 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.” The Act also
explains that persons who have entered into partnership with one another are individually called “partners” and
collectively “a firm.”
Characteristics of Partnership :
(i) A
ssociation of two or more than two persons : It is essential for the Partnership that there must be at least
two persons who are competent for agreement because less than two persons does not establish partnership.
(ii)
Maximum numbers of partners : Rule 10 of Company (Miscellaneous) Rules, 2014 says that no association of
partnership shall be formed, consisting of more than 50 persons for the purpose of carrying on any business.
(iii) Existence of an agreement : Partnership is the outcome of an agreement between two or more persons to
carry on business. This agreement may be oral or in writing. The Partnership Act, 1932 (Section 5) clearly
states that “ the relation of partnership arises from contract and not from status.”
(iv) E
xistence of business : Partnership Act, 1932 [ Section 2 (6) ] states that a “ Business” includes every trade,
occupation and profession. Business of course, must be lawful and its main object should be to earn profit.
Topic-2
Partnership Deed
Revision Notes
Partnership Deed
According to Section 5 of the Indian Partnership Act, 1932, Partnership Deed is an agreement between two or
more than two partners for determining their mutual contractual relationship and its limitation for better and
effective operation of business. It contains rules and conditions for operation of business. It can be registered or
unregistered. It should be comprehensive to avoid disputes later on.
The document which contains terms of the agreement is called 'Partnership deed.'
Content of Partnership Deed
(i) Name and Address of all Partners
(ii) Name of the Firm
(iii) Nature of the Business
(iv) Capital of the Partners
(v) Interest on Capital
(vi) Drawing by the Partners
(vii) Interest on Drawings
(viii) Profit and Loss Sharing Ratio
(ix) Partner’s Salary and Commission
(x) Method of Valuation of Goodwill
(xi) Settlement on Dissolution of Firm
(xii) Duration of Partnership
,Oswaal CBSE Chapterwise & Topicwise Revision Notes, accountancy, Class – XII [ 3
(xiii) Methods of evaluation of Assets and Liabilities
(xiv) Lending and Borrowing by the Partners
(xv) Admission and Retirement of Partners
(xvi) Duties of Partners
(xvii) Death of a Partner and his legal representative
(xviii) Insurance and its distribution
(xix) Relinquishment of Partnership
(xx) Arbitration Clause
(xxi) Maintenance of Accounts and their Audit
(xxii) Settlement of Disputes of the business
(xxiii) Treatment of loss arising out of insolvency of one or more partners
Different types of Partners in Partnership Firm are given below :
(i) Active Partner : A person who provides his share in capital and also takes active part in the management of
the business. The development of business depends upon the active partners.
(ii) Sleeping or Dormant Partners : These partners only provide capital and also share the profits and losses of
the business. A sleeping partner does not take active part in the management of a firm. These are not known
to public as partners.
(iii) Silent Partner : A silent partner is known to the public as a partner. He does not participate in the affairs of
the management. But he is liable to pay debts of the firm.
(iv) Secret Partner : He takes active part in the business but public does not know him as a partner of the firm.
He is liable to pay all the debts of the firm.
(v) Nominal Partner : These partners do not share the profits and losses of the firm. These partners do not
participate in the management of a firm. A firm only uses the name and reputation of the partners. So these
are called nominal partners.
(vi) Minor Partner : A minor may become a partner with the consent of all the partners. A minor is admitted in
the profits of the business only. He has no liability for losses.
(vii) Senior Partner : A person who is playing an important role in the management according to his ability,
experience and capital is called senior partner.
(viii) Junior Partner : A person who has small investment in the firm and has a limited experience of business is
called junior partner.
(ix) Limited Partner : A partner whose liability is restricted to his share only is called limited partner. He cannot
take part in the management of a firm.
(x) Unlimited Partner : When the liability of the partner is unlimited, he is called unlimited partner. The debts of
firm can be paid even by using the personal property of that partner.
Applicable provisions of the Indian Partnership Act, 1932 in the absence of Partnership Deed :
(i) Interest on partner’s loan will be paid @ 6% p.a.
(ii) If deed is silent regarding interest on capital, no interest on capital is to be allowed.
(iii) If deed is silent regarding interest on drawings or charges on drawings by partners, no interest on drawings
is to be charged.
(iv) If deed is silent regarding salary or remuneration or commission of partners for their services, no salary or
remuneration or commission is to be allowed to any partner.
(v) If deed is silent regarding profit sharing ratio, profit will be distributed equally.
Topic-3
Maintenance of Capital Accounts of Partners
Revision Notes
Methods of Maintaining Capital Accounts of Partners
There are two methods by which the capital accounts of partners can be maintained. These are:
1. Fluctuating Capital : When partners decide to maintain only Capital Accounts for each partner, all entries
regarding Interest on Capital, Interest on Drawings, Salary, Share in Profit or Loss and Drawings will be made
in the Capital Accounts. In this case, Capital will be fluctuating from year to year. This is known as Fluctuating
Capital.
, 4 ] Oswaal CBSE Chapterwise & Topicwise Revision Notes, accountancy, Class – XII
2. Fixed Capital : When partners decide that their capitals will remain fixed and it will not change due to Interest
on Capital, Interest on Drawings, Salary or Share of Profit or Loss and Drawings, it is termed as Fixed Capital. In
this case, there will be two accounts for each partner : Capital Account and Current Account. Entries for Interest
on Capital, Interest on Drawings, Salary, Share of Profit or Loss and Drawings will be made through Current
Account. However when there are frequent drawings, a separate Drawing Accounts may be opened for each
partner. At the end of accounting year, balance of each Partner’s Drawing Account will be transferred to their
respective Current Accounts.
Proforma of Partner’s Capital Account under Fluctuating Capital Method
Partner’s Capital Account
Date Particulars Amount Date Particulars Amount
To Balance b/d By Balance b/d
( in case of debit opening ( in case of credit opening
balance) .............. balance) ..............
To Drawings A/c .............. By Cash/Bank A/c
To Interest on drawings A/c ............. (Additional Capital) ..............
To Profit & Loss A/c By Interest on Capital A/c ..............
(Share in Loss) .............. By Commission A/c ..............
To Balance c/d By Partner's Salary A/c ..............
(Closing Balance) .............. By P&L Appropriation
A/c (Share in Profit) ..............
By Balance c/d
(Closing balance) ..............
Proforma of Partner’s Capital Account under Fixed Capital Method
Partner's Capital Account
Date Particulars Amount Date Particulars Amount
To Cash/Bank A/c By Balance b/d ..............
(Withdrawal of Capital) .............. By Cash/Bank A/c
(Additional Capital) ..............
To Balance c/d ..............
Proforma of Partner’s Current Account under Fixed Capital Method
Partner's Current Account
Date Particulars Amount Date Particulars Amount
To Balance b/d By Balance b/d
(if there is old debit balance) .............. (if there is old credit balance) ..............
To Drawings A/c .............. By Interest on Capital A/c ..............
To Interest on Drawings A/c .............. By Salary A/c ..............
To Profit & Loss A/c By Commission A/c ..............
(Share in Loss) .............. By P&L Appropriation A/c
To Balance c/d (Share of Profit) ..............
(If credit side's total is more) .............. By Balance c/d
(If debit side's total is more) ..............
