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  Meaning of Partnership as per Section 4 of 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.”   Essential Elements, Main Features or Characteristics of Partnership There must be two or more persons. There must be an agreement. There must be a lawful business.   There must be sharing of profits of business. There must be a mutual agency, i.e., the business must be either carried on by all or any of them acting for all. Partnership Deed: The document containing the terms and conditions of the agreement between/among partners, is known as the Partnership Deed . The Partnership Deed usually includes the following:   1.       Name and address of the firm. 2.      ...

Important Key Terms in Partnership Accounting Partnership Partnership is a relationship between persons who have agreed to share profits and losses of business carried on by all or any of them acting for all. Partners Partners are the persons who have agreed to do business and share its profits and losses. Firm Partners carrying on the business are collectively known as firm . The name under which the business is carried on is called firm name . Partnership Deed Partnership Deed is a written agreement among the partners detailing the terms and conditions of the partnership. The Indian Partnership Act, 1932 It is an Act that governs the partnership firms. In case, Partnership Deed is silent on any issue, provisions of the Act apply. Capital Capital is the amount in credit of Partner’s Capital Account. It may be contributed by the partners in the firm and/or credited by way of ...

  Super profit methods   Under these methods, super profit is the base for calculation of the value of goodwill. Super profit is the excess of average profit over the normal profit of a business. Super profit = Average profit – Normal profit   Average profit is calculated by dividing the total of adjusted actual profits of certain number of years by the total number of such years. Normal profit is the profit earned by the similar business firms under normal conditions.   Normal profit = Capital employed × Normal rate of return Capital employed = Fixed assets + Current assets – Current liabilities   Normal rate of return = It is the rate at which profit is earned by similar business entities in the industry under normal circumstances   (a) Purchase of super profit method Under this method, goodwill is calculated by multiplying the super profit by a certain number of years of purchase. Goodwill = Super profit × Num...

  (b) Weighted average profit method Under this method, goodwill is calculated by multiplying the weighted average profit by a certain number of years of purchase. Goodwill = Weighted average profit × Number of years of purchase In this method, weights are assigned to each year’s profit. Weighted profit is ascertained by multiplying the weights assigned with the respective year’s profit. The sum of the weighted profits is divided by the sum of weights assigned to determine the weighted average profit. Weighted average profit   =    Total of weighted profits                                                               Total of weights This method is used when the profits show an increasing or decreasing trend. More weight is generally given to the profits ...