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Partnership | Accounting | One Shot | CA Foundation June 24 | CA Rakesh Kalra

Unacademy CA 360 Foundation・2 minutes read

Kalra ji conducts a partnership class covering various aspects like goodwill, partner admissions, retirement, and interest calculations on capital and drawings. Detailed discussions on interest calculations, profit sharing, capital adjustments, and financial distributions among partners are highlighted, emphasizing the importance of understanding complex financial concepts in effective partnership accounting.

Insights

  • Kalra ji conducts a partnership class covering fundamental aspects like goodwill, admission, retirement, and death of partners, emphasizing the importance of interest calculations on withdrawals.
  • Partners without a deed must follow strict rules including no salary, interest on capital or drawings, 6% interest on loans, and equal profit sharing.
  • Interest on partner withdrawals is intricately calculated based on timing, frequency, and the method of withdrawals, impacting the overall partnership accounting.
  • Various methods like simple average, weighted average profit, and super profit are used to evaluate goodwill, with detailed formulas and calculations provided.
  • Capital adjustments, revaluation of assets, and financial distributions among partners are crucial components discussed in the partnership class.
  • Specific financial transactions, adjustments, and calculations are meticulously detailed, ranging from goodwill valuation to capital adjustments and investment revaluations.

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Recent questions

  • How does interest on partner withdrawals affect accounting?

    Interest on partner withdrawals is a crucial aspect of partnership accounting, as it depends on the timing and frequency of withdrawals. The calculation of interest on drawings is influenced by the partner's withdrawal pattern, whether fixed or irregular. The timing of withdrawals within a month, such as at the beginning, middle, or end, impacts the interest calculation. Withdrawals at the beginning of the month result in a longer period for interest calculation, affecting the average monthly balance used in the calculation. Partners can withdraw money with or without a fixed pattern, and the frequency of withdrawals determines the average duration the money is kept. Understanding these intricacies is essential for accurate partnership accounting and ensuring fair profit distribution among partners.

  • What are the rules partners must follow without a deed?

    In the absence of a partnership deed, partners must adhere to five fundamental rules to govern their partnership agreement. These rules include no salary for partners, no interest on capital, no interest on drawings, a fixed 6% interest rate on loans provided by partners, and equal profit sharing among all partners. These rules ensure transparency, fairness, and consistency in the partnership's financial operations and profit distribution. Adhering to these rules helps maintain trust and harmony among partners and fosters a cooperative and mutually beneficial partnership environment.

  • How is interest on capital calculated for partners?

    Interest on capital (IOC) for partners is calculated based on the opening capital amount invested by each partner. The interest rate is typically predetermined and applied to the capital amount to determine the interest payable to each partner. Partners receive IOC as a return on their investment in the partnership, reflecting the opportunity cost of tying up their capital in the business. Calculating IOC accurately is essential for recognizing and rewarding partners for their financial contributions to the partnership, ensuring equitable treatment and financial stability within the business.

  • What are the methods for valuing goodwill in partnerships?

    Goodwill valuation in partnerships involves several methods, including the simple average method, weighted average profit method, super profit method, Eigen Average Capitalization method, Super Capitalization method, and Super Capital Ejaculation method. Each method has specific formulas and calculations to determine the value of goodwill in the partnership. The valuation of goodwill is crucial for assessing the intangible assets and reputation of the partnership, influencing financial decisions, profit distribution, and partner relations. Understanding these valuation methods is essential for accurate financial reporting and strategic planning within the partnership.

  • How are capital adjustments and financial distributions handled in partnerships?

    Capital adjustments and financial distributions in partnerships involve a detailed process of reconciling capital investments, withdrawals, profits, losses, and other financial transactions among partners. Partners' capital accounts are adjusted based on their contributions, withdrawals, and profit-sharing ratios. The distribution of profits, commissions, salaries, and bonuses among partners is calculated according to the partnership agreement and financial performance. Effective capital ratio calculations help determine each partner's share of profits and losses accurately. Managing capital adjustments and financial distributions ensures transparency, accountability, and financial stability within the partnership, fostering trust and cooperation among partners.

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Summary

00:00

Partnership Class: Interest Calculation Intricacies Explained

  • Kalra ji is conducting a partnership class and instructs participants to send the link to others.
  • The class covers five parts: fundamentals of partnership, calculation of goodwill, admission of a partner, retirement of a partner, and death of a partner.
  • Dissolution of a partnership will be discussed separately on the 18th class.
  • In the absence of a partnership deed, partners must adhere to five rules: no salary, no interest on capital, no interest on drawings, 6% interest on loans, and equal profit sharing.
  • The calculation of interest on drawings depends on the partner's withdrawal pattern.
  • Partners can withdraw money with a fixed pattern or without a pattern.
  • The timing of withdrawals in a month (beginning, middle, or end) affects the interest calculation.
  • Withdrawals at the beginning of the month result in a longer period for interest calculation.
  • The average monthly balance for interest calculation can be determined by adding the opening and closing balances and dividing by 2 or by 12.
  • The class emphasizes understanding the intricacies of interest calculations on partner withdrawals for effective partnership accounting.

14:13

"Timing of Withdrawals Affects Interest Calculation"

  • Withdrawal from 15th April onwards, considering 15 days of April, followed by months of withdrawal.
  • Average the months of withdrawal to determine the average time the money is kept.
  • Withdrawal at the end of each month, such as April 30th and May 31st, affects the interest calculation.
  • Interest is paid monthly, with varying durations based on the withdrawal timing.
  • Detailed explanation of averaging and timing for withdrawals at different points in the month.
  • Withdrawal frequency impacts the average duration the money is kept.
  • Utilizing the product method for calculating interest based on withdrawal dates and amounts.
  • Interest on capital (IOC) is calculated based on the opening capital amount.
  • Example calculation of interest on capital for partners based on additional investments and time.
  • Profit and loss distribution in partnerships is related to partners' ratios and income/expenses.

29:26

"Commission and Profit Calculations for Partners"

  • Ram drew Rs. 3000 and Mohan drew Rs. 2000, with Ram's ID already calculated.
  • Commission instructed Ram that he would receive profit after charging Rs. 20 expenses, including true commission.
  • The formula for calculating commission is 10 x 110, not 20 x 120.
  • Ram will receive a salary of Rs. 5000 per month, while Mohan will get a bonus of Rs. 40000.
  • The firm's capital is Rs. 4 lakh, with a net profit of Rs. 1 lakh.
  • The income for the firm is Rs. 5000, with Ram and Mohan contributing Rs. 3000 and Rs. 2000 respectively.
  • Ram will receive commission after charging all expenses, calculated as 10 x 110.
  • After deducting expenses, the profit left is Rs. 833, divided between the partners.
  • Shyam and Mohan's capital accounts are created, with a balance brought down of Rs. 5 lakh and Rs. 2.5 lakh respectively.
  • Mohan will receive a commission of Rs. 50000, and interest on capital is at 10%.

45:55

"Partners' Capital Transactions and Interest Calculations"

  • A loan of ₹1 lakh was given to the firm with an interest rate of %.
  • Interest on a loan amount of Rs 2 lakh is Rs 12000.
  • Interest on partner's loan is paid by the firm.
  • Profit divisible by 10 is Rs 4 lakhs, with fixed capital of Rs 4 lakhs.
  • Current account balance includes Rs 2 lakh and an additional Rs 10000.
  • Salary expenses for the firm are to be paid.
  • Effective Capital Ratio is calculated based on capital investments and withdrawals over different months.
  • Initial capital investments and withdrawals for partners A and B are detailed.
  • Partner B's initial capital of Rs 3 lakh is adjusted with subsequent deposits and withdrawals.
  • The total capital amount is calculated for each partner based on their transactions over different months.

01:01:18

Calculation and Division of Profits in Business

  • A gap of one month is from February 1st to April 30th, with February, March, and April being the months involved.
  • There is a gap of three months from April 30th to August 31st, with April ending in June and July and August following.
  • Four months span from August 31st to October 31st, with August and September passing.
  • The study involves multiplying 3 lakh by 300, resulting in 3 lakh 30000, and then by 3, totaling 1050000.
  • Effective capital ratio is 54:5400 for the first and second, with a ratio of 900.
  • A guarantee to a partner involves ensuring profits are not less than a fixed amount, such as Rs 15000 per year.
  • Raja, Ram, and Mohan's capital is 5 lakhs, 3 lakhs, and 2.5 lakhs, respectively, with interest on capital at 10%.
  • Commission calculations involve Raja receiving 3000, Ram 5000, and Mohan 2000, with Mohan's commission on turnover at 10% of Rs 5 lakhs.
  • After various calculations, the profit is divided between Raja, Ram, and Mohan, resulting in 38636, 25758, and 879 respectively.
  • Goodwill valuation methods include the simple average method, weighted average profit method, and super profit method, each with specific formulas and calculations.

01:20:34

Calculating Super Profit and Capitalization Methods

  • The formula for calculating super profit involves subtracting the normal profit from the average super profit.
  • Capital employed is determined by subtracting liabilities from assets.
  • The next method discussed is the average capital ejaculation method.
  • The formula for Eigen Average Capitalization involves subtracting the required capital from the capital employed.
  • The required capital is calculated by dividing the average profit by the rate of return.
  • The Super Capitalization Method is the second last method discussed.
  • The formula for Super Capitalization involves multiplying the super profit by the number of years and dividing by the rate.
  • The last method discussed is the Super Capital Ejaculation Method.
  • The formula for this method involves dividing the average profit by the rate to determine the required capital.
  • The final formula mentioned is for Goodwill, which is calculated by multiplying the average profit by the NT figure.

01:40:48

"Partnership Capital Adjustments and Balance Sheet Reconciliation"

  • General reserve of Rs 15000 with a ratio of 32 divided by 15000 resulting in 9000 and 6000 respectively.
  • Goodwill worth Rs 200 to be removed from the asset side.
  • Opening capital posted in reserve and new partner's capital brought in.
  • Capital adjustment based on new partner's entry and exit.
  • Revaluation profit of Rs 25000 to be shared based on old ratio.
  • Provision for loss of Rs 7000 to be made.
  • Plant and machinery to be reduced by Rs 10000.
  • Stock loss of Rs 3000 resulting in stock value decreasing from 27 to 24.
  • Capital adjustment process detailed with adjustments for new partner's entry.
  • Balance sheet reconciliation with liabilities and assets matching.

01:56:01

"Capital Adjustments and Profit Sharing Analysis"

  • BD of Vari Capital is 30 and 16 300 and 16000
  • Next task is to wait if there is any reserve named General Reserve
  • 6000 in 3rd place divided by General Reserve in Rev. weight 6000 4500 and 1500
  • Advertisement suspense mentioned, to be remembered
  • Butt brought 500 new partner capital, no premium brought
  • New partner bought 14000 from bank, brought capital
  • Tax adjustments will affect capital, tally amount will differ
  • Revaluation adjustment: stock value reduced by 10, incurring a loss of Rs 2000
  • Furniture reduced by 10, 1000's value reduced to 100
  • Provision for loss of 16000 on DD debtor, 800 on 5th, 16000 on 5th, 800 in balance sheet
  • Profit sharing: A and B to get 5000, 2100 profit to be shared
  • Capital adjustment: C's capital divided among A, B, and C in a ratio of 30:10:10
  • Withdrawal of capital: A, B, and C to withdraw 7575, 8525, 16100 respectively
  • Liability balance: creditor's 37500, bank assets 22500, capital brought 14000
  • Adjustment for unclaimed dividend liability and plant and machinery overvaluation
  • Investment value increased by 10000, profit of 25000 to be shared
  • Demand for money from A and B due to asset withdrawal, investment assets to be nil

02:13:11

"Unclaimed Dividend Liability Decreased, Capital Adjustment Required"

  • Unclaimed dividend liability increased by 25, reducing from 100 to 20.
  • Benefit of buying unclaimed dividend of Rs 5000 is only five.
  • Noni Noni will be more in the balance sheet.
  • No unclaimed dividend on the liability side.
  • Liability decreased from 25 to 20 by 5000.
  • Plant should move forward despite end machinery being overvalued.
  • Damage to plant and machinery needs to be reduced by 88000.
  • Capital adjustment is required for partners A and B.
  • Remaining shares need to be extracted by multiplying the capital of A and B.
  • Capital of A, B, and C will be 123,200; 73,800; and 65,667 respectively.

02:47:21

Financial adjustments and distributions among partners discussed.

  • The speaker checks the clarity of their voice through a mic, asking for feedback.
  • They confirm the sound quality and inquire about any issues.
  • The speaker mentions having an expensive phone and a mic attached for better sound.
  • Discussion shifts to financial terms like Capital, BD, and retirement.
  • Details about dividing reserves and goodwill among partners are discussed.
  • Specific amounts like Rs 15,000 and Rs 25,000 are mentioned in the financial calculations.
  • The text delves into adjusting values of investments, provisions, and losses.
  • Depreciation of machinery and stock adjustments are highlighted.
  • The process of dissolution and resolving financial matters is outlined.
  • The speaker guides through capital adjustments and financial distributions among partners.

03:04:12

Financial Transactions and Capital Adjustments Summary

  • Total amount involved: Maths Tax 75, 10, 18, 12, and 10, with 125 cashed in the bank out of 125.
  • Purchase of two cash for Rs 35,000, with the remaining to be given to a retiring person and the rest to B's loan.
  • Transfer of remaining money to B's loan, remembering the Rs 90,000 loan.
  • Calculation of the new share values for A and B after retirement, with the new share values being 16 and 25.
  • Adjustment of capital for A and C, with the new capital being Rs 163,200 and Rs 91,800.
  • Comparison of partner's capital, with the need for additional investment of Rs 18,800.
  • Calculation of the previous cash amount of Rs 15,000 and the subsequent cash transactions.
  • Details of liabilities and assets, including creditor's Rs 55,000 and various stocks and investments.
  • Adjustment of goodwill worth Rs 32,000, to be deducted from R in the ratio of 5:3.
  • Maintenance of minimum bank balance of Rs 18,000, with Rs 40,000 to be used from the bank.

03:22:53

"Adjusting Capital and Payments for Partners"

  • 104000 remaining partners needed to be brought in to address the shortfall
  • Capital needed to be prorated based on specific calculations provided
  • Initial CD of 150 Ps, 15 Ps, and 20 Ps, with adjustments made for various amounts
  • Detailed steps for adjusting capital and payments for R
  • Specific amounts to be paid and adjusted, including 144 and 40 to be used from the bank
  • Total capital of the firm calculated at 370000, divided into 53 in P and K
  • Additional capital investments required, with specific amounts detailed
  • Instructions for bank transactions and capital adjustments
  • Explanation of GLP (Joint Life Policy) and its implications in various scenarios
  • Revaluation of assets and adjustments in capital accounts, with specific numerical data provided

03:39:48

Accounting Transactions and Adjustments in Business

  • The distribution reserve was 1 by 25000, with 5000 as the reserve r in its share.
  • The panel was 20000, with the price also set at 20000.
  • The share of Rs 20000 is 4000.
  • Goodwill entry involves giving it to the Goodwill seller and buying Capital in RK Ledger.
  • Revaluation adjustment includes a decrease in Land and building by Rs 35000 due to damage.
  • A loss of 25000 is incurred in investment.
  • Plant & Machinery is less than fault, aiming to increase profit by buying more.
  • A loss of 40000 is coming, with a ratio of two 10 10 Pa.
  • The partner who is dead is given 6 months' rest and a salary of 24000.
  • The JLP account is created with two options, considering or not considering surrender value.

03:56:54

"Balance in PNL and Surrender Value"

  • The text discusses the concept of balance in PNL and surrender value, focusing on financial transactions and calculations.
  • Specific dates and amounts are mentioned, such as the surrender value of 2020 being 000, deposits made on January 1, 2021, and the sale of an item on December 31, 2021.
  • The importance of surrender value in creating balance CDs is highlighted, with examples provided to explain the calculations involved in determining values like Rs 36 and Rs 5000.
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