Partnership Deed

Correct answer: A. To share profit and loss

The direct answer is A: the profit-sharing ratio is written to share profit and loss among the partners. A partnership involves more than one owner, so the deed should state how the business result will be divided. If partners agree to a ratio such as 2:1, a distributable profit of ₹30,000 would give ₹20,000 to one partner and ₹10,000 to the other, after considering any required adjustments. Unless a different agreement or applicable rule is stated, the agreed ratio is also commonly used for sharing losses. Option A is correct because it identifies the purpose of the ratio. Option B is wrong because the ratio does not exist merely to sell goods; buying and selling are business operations, not the division rule. Option C is wrong because the ratio is not written only for saving tax, and it cannot guarantee tax reduction. Option D is wrong because salary is a separate matter and may be fixed in the deed; the profit-sharing ratio does not mean “only to pay salary.” The ratio gives each partner’s agreed economic share. Exam cue: profit-sharing ratio answers “in what proportion will partners share the result?”

Correct answer: A. Profits will be shared equally

When the deed is silent on profit sharing, the standard accounting/legal rule is that partners share profits equally. This is the default rule under partnership practice (and supported by the Partnership Act). Option B is a common distractor — sharing in the ratio of capitals applies only when the deed or agreement specifies it, not by default. Options C and D are incorrect because profits belong to the partners jointly and are not payable solely to a senior partner or to the government. Exam tip: If no ratio is given in the deed, write “shared equally” immediately; if asked, mention the relevant legal/default rule.

Correct answer: A. Capital contribution of each partner

A partnership deed commonly records each partner’s capital contribution (the amount each partner invests) because this determines capital accounts and affects interest on capital or profit allocation. Options B (profit-sharing ratio), C (duration/dissolution terms) and D (management rights and duties) are typical deed clauses but are not capital-specific details, so A is the correct capital-related choice. Exam tip: Memorize common deed clauses (capital, profit ratio, duties, duration); for capital questions focus on ‘who invested how much’ and related terms like interest on capital or fixed vs. fluctuating capital.

Correct answer: A. When it is written in the deed

The governing principle is that interest on a partner’s capital is not an automatic right in every partnership. It is allowed when the partnership deed specifically provides for it or when the partners make another valid agreement authorizing the payment. The rate, period, capital base, and any conditions must then be applied according to that agreement and the applicable accounting rules. Therefore, option A is correct. Option B is too broad because interest is not payable in every situation without conditions. Option C is wrong because the provision is not restricted only to a year in which the firm incurs a loss. Option D is also incorrect because a valid deed can expressly permit interest on capital.

Correct answer: A. To discourage excessive personal withdrawals and maintain capital discipline

Interest on drawings is charged to discourage partners from making excessive personal withdrawals and thus to maintain capital discipline in the firm; the interest is treated as income of the firm, compensating it for use of funds. The closest distractor, 'to increase sales', is incorrect because charging interest on a partner's withdrawals does not affect business sales or revenue. Exam tip: Distinguish interest on capital (expense for the firm) from interest on drawings (income for the firm).

Correct answer: A. No interest will be charged

Direct answer: Option A, no interest will be charged. Under the usual Indian partnership accounting rule, interest on drawings is allowed only when the partnership deed provides for it. Reasoning: drawings are withdrawals made by a partner; interest on drawings is a charge for using firm funds; therefore there must be an agreement authorising that charge. If the deed is silent, the agreed authority is absent, so no interest on drawings is recorded. Option A is correct. Option B is wrong because a fixed 10% rate cannot be imposed without a deed provision. Option C is wrong because the rule does not depend on seniority. Option D is wrong because the bank does not decide an internal partnership adjustment. Do not confuse this with interest on a partner’s loan, which follows a separate rule. Memory cue: silent deed plus drawings equals no interest on drawings.

Correct answer: A. To reward special service

A partner may devote additional time, skill, or managerial effort to the firm beyond the ordinary responsibilities of partnership. If the partners agree to compensate that special service, the amount or basis of the partner’s salary should be stated in the partnership deed. It then becomes an agreed appropriation or remuneration item and can be recorded consistently in the accounts, subject to applicable rules. Option A is correct because the payment rewards extra work performed for the firm. A customer is not the intended recipient, and reducing goods prices or ending the agreement has no connection with partner salary.

Correct answer: A. Salary will not be allowed

Without provision in the deed a partner does not get salary. In exams link salary with agreement only.

Correct answer: A. For a partner doing special work

A partnership deed may authorize commission or other remuneration for a partner who performs special duties, brings exceptional skill, manages a major function, or contributes additional effort to the firm. The deed should identify the eligible partner or the basis of calculation, such as a fixed amount or a percentage, so the payment can be determined and recorded properly. Option A is correct because the commission rewards a partner’s agreed service to the partnership. Customers, supplier companies, and bank employees are outside the normal internal remuneration arrangement described by this clause, so options B, C, and D are unsuitable.

Correct answer: A. To clearly identify the firm and link the deed to that specific firm

The primary purpose of stating the firm's name in the partnership deed is to identify the business unequivocally and to link the deed to that specific firm, avoiding confusion in legal and commercial matters. Option B may seem plausible, but profit‑sharing ratios are specified in separate clauses of the deed — they are not determined by the firm's name. Options C and D are incorrect because a name does not automatically grant a tax identification number nor does it remove partners' personal liabilities. Exam tip: emphasize identification and legal clarity when justifying why the firm name is required in the deed.

Correct answer: A. It clarifies the work of the firm

Nature of business shows the firm’s area of work. It keeps partners’ authority clear and limited.

Correct answer: A. To establish clear identification and legal identity of the partners

Recording names and addresses ensures each partner is clearly identified — necessary for legal identity, liability and resolving disputes. Details like profit‑sharing ratios are specified separately in the deed; names/addresses do not determine profit shares. Exam tip: for "primary purpose" questions choose the most basic/legal function — identification and clarity of parties.

Correct answer: A. How long the firm will continue

Duration shows whether the firm is for a fixed period or not. It clarifies the partnership plan.

Correct answer: A. Where and how the books will be kept

A partnership deed may prescribe practical rules for maintaining the firm’s books of account. It can state where the books and supporting records will be kept, who will write or supervise them, which accounting period will be followed, and how partners may inspect or verify the records. Such provisions support transparency and help partners check transactions involving capital, drawings, sales, purchases, income, and expenses. Therefore, option A is correct because it directly concerns the custody and maintenance of accounting books. Shop cleaning may be an operational duty, choosing customers may be a business decision, and market timings may affect operations, but none of these is specifically a rule about keeping books of account.

Correct answer: A. To decide who will sign

The direct answer is A: the deed states who is authorized to sign and operate the bank account. A firm receives and pays money through its bank account, so clear authority is important for control and safety. The deed may specify whether one partner can sign alone, whether two partners must sign jointly, or what procedure applies to cheques and other instructions. Option A is correct because it identifies the decision that must be made: who may operate the account and authorize transactions. This reduces confusion and helps prevent unauthorized withdrawals. Option B is wrong because a bank-operation rule does not buy a bank building. Option C is wrong because a bank is not made a partner simply by being used for banking services; partnership requires an agreement among persons capable of becoming partners. Option D is wrong because the rule does not ignore cash; it controls the firm’s banking transactions and supports proper cash management. Thus this clause is about authority, accountability, and protection of partnership funds. Memory cue: bank-operation clause means “who can sign and who can authorize payment.”

Correct answer: A. To fix the rate of interest on loans given by a partner to the firm

A partnership deed specifies interest on loans to avoid disputes when a partner advances money to the firm. A clear clause fixes the rate, timing and treatment of such interest in the books, ensuring consistent accounting. Options B and C refer to profit-sharing ratios or partner remuneration, which are different clauses and do not fix interest on partner loans. Option D is unrelated. Exam tip: when you see 'interest on loan' in deed-related questions, relate it to loans advanced by partners and look for the prescribed rate in the deed.

Correct answer: A. Six percent per annum

Under the general rule partner’s loan carries six percent per annum interest. It is different from interest on capital.

Correct answer: A. For admitting a new partner

Admission rules describe the conditions and procedure for bringing a new person into an existing partnership. They may cover the consent required from existing partners, the capital contribution, the new partner’s profit-sharing ratio, goodwill contribution, duties, and liability from the date of admission. Such terms protect the existing agreement and make the change in the partnership structure clear. Option A is correct because admission specifically means the inclusion of a new partner. Burning old goods, removing a customer, or keeping a shop closed is unrelated to the legal and accounting process of admitting a partner.

Correct answer: A. Process of a partner leaving

The direct answer is option A: the retirement rule shows the process by which a partner leaves the firm. A partnership deed may explain how notice is given, how the retiring partner's capital and current account are settled, how goodwill and revaluation are treated, how the amount due is paid, and how the continuing partners adjust their new ratio. Option B, a customer complaint, concerns service or business relations, not a partner's exit. Option C, a bank holiday, is a banking calendar matter and has no connection with retirement. Option D, packing goods, concerns inventory handling and does not explain a change in partners. Thus A is the only relevant answer. Remember that retirement changes the partnership relationship and requires a proper financial settlement, not merely a verbal departure.

Correct answer: A. To settle the deceased partner’s account

The deed includes a death-settlement clause to provide a clear procedure for closing and paying the deceased partner’s capital account, settlement of his share of profits, goodwill or interest, and payment to his legal representatives. This prevents disputes and delays. Option C (changing profit-sharing ratio) relates to reconstitution or admission of partners rather than the specific task of settling a deceased partner’s account, so it is incorrect. Exam tip: When you see “settlement on death,” focus on closing and payment to the deceased partner or his heirs, not on increasing partners or changing business lines.

Correct answer: A. To resolve partners’ disagreements

A dispute-settlement clause establishes the agreed method for dealing with disagreements among partners. It may require discussion, mediation, arbitration, or another lawful procedure before the matter is taken to court. The clause can identify the authority or process to be used, the place of proceedings, and the way costs or decisions will be handled. This gives partners a predictable route and may reduce delay, expense, and disruption to the business. Option A is correct because the clause addresses conflicts between partners. Increasing customers, distributing a bank’s profit, or hiding the price of goods is unrelated to dispute resolution.

Correct answer: A. On admission or retirement

Goodwill provision is useful in cases like admission and retirement. It reduces valuation disputes.

Correct answer: A. Who will check the accounts and when

The audit/checking clause in the deed specifies who will examine the books (which partner or an external auditor), how often the inspection will take place, and the scope of that inspection. This ensures transparency and trust among partners, so option A is correct. Option B (profit-sharing ratio) and options C and D (managing partner appointment or admission procedure) concern different clauses and do not define the audit arrangements. Exam tip: when reading a deed, match each clause to its purpose—audit clauses normally name the auditor, frequency and inspection rights.

Correct answer: A. Serves as documentary evidence in disputes

A written deed provides documentary proof of the partners’ agreed terms and can be produced in court or shown to third parties, whereas oral agreements are hard to prove and remember. Option C (automatic bank loan) is incorrect because lenders evaluate creditworthiness and security; a deed alone does not guarantee loan approval. Exam tip: always get the deed signed, dated and properly stamped/registered and keep copies for evidence.

Correct answer: A. Written and signed document

A signed written document makes rules more reliable. In exams remember the importance of signatures.