Question

Ms. Sasha, the founder and chairman of Yummy Chocolates, a company that specializes in making
chocolates, by using local ingredients eyes future expansion plan for their SME venture. Yummy
Chocolates has been considered as a successful SME model for youth in Canada. Sasha, a school
dropout started this venture from her home in Alberta and was one of the first chocolatiers in the
region. Sasha’s company buys products from local farmers in an attempt to support local workers
and contribute to the growth in the local economy. Sasha’s business model inspired Ms. Amna, an
Omani national who had visited Canada and had learned about her small venture. Amna and Sasha
had been in frequent contact. Amna wanted to start a company of her own and Sasha was ambitious
on expansion. Both these individuals decided to help each other’s cause and decided to start a small
chocolate manufacturing company in Oman. Sasha cannot afford to leave Canada and hence
decides to transfer the know-how and capital to Amna. Amna will be responsible for carrying out
the Functional activities of the firm
You are an independent advisor based in Muscat and are requested to explain the
procedure of forming a partnership firm. Also explain in detail the different methods by
which the partners could maintain the capital in the firm.

Answer 1

Formation of Partnership Firm

A partnership firm is business entity created by person who have agreed to share profit or loss of the business . Partnership are a very good choice of business entity for small enterprise within two or more persons , decide to contribute to a business and share the profit and loss

There are two types of partnership ;

- registered partnership

- unregistered partnership

A partnership firm can be registered at anytime even subsequent to the formation . The registration of a partnership firm is done through the registar of firm in which the partnership firm is situated when the registar of firm is satisfied , they issue certificate of registation

For registraion following formalities are required

- registration form for incoorporation

- identity proof

- address proof of partner

- certified copy of partnership deed

- proof of principal place of business

Identity proof contain Pan card , Passport, Driving license required

Proof of prinncipal place of business require

- sale deed

- rental agreement copy

- copy of latest electricity bill, propertytax receipt

Contribution of capital

There are basically two methhod used by the partner of a firm to maintain capital account

- Fxed capital method

Under this , capital of the partner is not altered and it remain fixed , and two accounts are prepared namely, partner capital account and partners current account

under partner capital account cash is introduced and withdrawn are recorded only while under the current account opening balance of current account is credited and amount of interest on capital , salary to partner if any, commission , profit sharing profit part are credited while on the debit side  drawing, interest of drawing, loss from revaluation from assets and liabilities are recorded.

- Fluctuating capital method

Under this metod only capital account is prepared , all the transaction between the oartner and the firm are recorded among the capital account.

In this account on credit side capital balance of the partner are credited and amount of interest on capital , salary to partner if any, commission , profit sharing profit part are credited while on the debit side  drawing, interest of drawing, loss from revaluation from assets and liabilities are recorded.