Provisions of the Indian Partnership Act, 1932 (In Absence of Deed)
When there is no explicit partnership deed:
- Profit Sharing Ratio: Shared equally among all partners ($1:1$).
- Interest on Capital: No interest allowed to any partner.
- Interest on Drawings: No interest charged from partners.
- Salary / Remuneration: No partner entitled to salary or commission.
- Interest on Partner's Loan to Firm: Allowed at $6\%$ per annum (charged against profit, not appropriation).
Profit & Loss Appropriation Account Format
An extension of the P&L Account to distribute net profit among partners:
Dr. Profit & Loss Appropriation Account Cr.
──────────────────────────────────────────────────────────────────────────────────────
Particulars Amount | Particulars Amount
──────────────────────────────────────────────────────────────────────────────────────
To Interest on Capital: | By Profit & Loss A/c (Net Profit) XX
A's Capital XX | By Interest on Drawings:
B's Capital XX XX | A's Capital XX
To Partner's Salary / Commission XX | B's Capital XX XX
To General Reserve XX |
To Divisible Profit Transferred: |
A's Capital / Current A/c XX |
B's Capital / Current A/c XX XX |
──────────────────────────────────────────────────────────────────────────────────────
Total XX | Total XX
──────────────────────────────────────────────────────────────────────────────────────Calculation of Interest on Drawings (Average Period Method):
$$\text{Interest on Drawings} = \text{Total Drawings} \times \frac{\text{Rate}}{100} \times \frac{\text{Average Period}}{12}$$
- Fixed amount at beginning of every month: $\text{Avg Period} = 6.5\text{ months}$
- Fixed amount at middle of every month: $\text{Avg Period} = 6\text{ months}$
- Fixed amount at end of every month: $\text{Avg Period} = 5.5\text{ months}$
