Partnership Deed

A partnership deed is executed among the partners of a firm. It specifies partners' rights and duties, profit/loss sharing, capital contributions and management rules, thereby defining their mutual relationship. Options B, C and D describe other legal/commercial relationships (bank–customer, government–trader, employer–employee) and are not partnership deeds. Exam tip: Spot the words 'partners' or 'firm' in the question to identify partnership-deed queries quickly.

A partnership deed records capital contributions, profit-sharing ratio, duties, interest and other rules in advance. Clear, pre-agreed rules reduce ambiguity and thus lower the chance of disputes among partners. Options B and C describe specific provisions of a deed (predetermined profit sharing; specified rights and duties) but these are parts of the deed whose overall benefit is dispute prevention — they are not a separate ‘biggest’ advantage. Option D is incorrect: a deed does not grant tax exemption; taxation is governed by tax law. Exam tip: remember that the deed's primary purpose is to prevent future disagreements by fixing terms up front.

When partners have not made a partnership deed, the applicable default rules of the Partnership Act govern their mutual rights. One important rule is that, in the absence of an agreement to the contrary, partners share profits and losses equally, regardless of the amount of capital contributed by each partner. For example, if two partners earn a profit of ₹40,000, each receives ₹20,000; if there are four partners, each receives one-fourth, subject to the governing law. Therefore option A is correct. Capital ratio is not automatically used, and salary ratio or loan ratio is not a standard basis for distributing partnership profit. The deed could have specified another ratio, but no deed means the statutory default applies.

The accounting rule is that interest on capital is allowed only if the partnership deed specifies it. When there is no deed or the deed is silent about interest on capital, partners are generally not entitled to interest on their capital, so the correct answer is 'Nothing'. The closest distractor (Six percent) is incorrect because there is no automatic default rate — a rate applies only when the deed provides for it. Exam tip: Always check the partnership deed first; if it is silent about interest on capital, do not allow interest in adjustments.

Under the usual partnership rules applied when there is no partnership deed, a partner is entitled to interest on a loan advanced to the firm at 6% per annum. A partner’s loan is treated separately from the partner’s capital. This distinction is important because interest on capital is not automatically allowed in the absence of an agreement, whereas interest on a loan follows the specified statutory rule.

Therefore, the correct choice is option A, six percent per annum. The rate is not zero, twelve percent, or necessarily equal to the rate on capital. The loan represents money lent by the partner to the firm, so the prescribed annual rate applies even when the deed does not state a separate rate.

Charging interest on drawings is a contractual matter determined by the partnership deed or by agreement between partners. If the deed is silent, interest is not charged by default. Partners can later agree to charge interest, but it does not apply automatically. Option C is a close distractor—mutual consent can create a valid charge, yet it is not the default rule. Exam tip: always check the partnership deed first; when the deed is silent, answer ‘no’ unless an agreement is shown.

Direct answer: Option A, the partner will not get salary. A partner is an owner and normally works for the common business interest. Salary or remuneration to a partner is not automatically payable merely because the partner performs work. Step by step: check the deed; if it expressly allows salary, it may be provided according to its terms; if the deed is silent, no salary is allowed under the usual rule. Option A is correct. Option B is wrong because payment is not certain without an agreement. Option C is wrong because being a capital provider does not itself create a salary right. Option D is wrong because the title “manager” alone does not override the partnership agreement. This answer concerns salary to a partner, not wages paid to an outside employee. Memory cue: partner’s salary needs deed authority.

The firm's name uniquely identifies it for legal documents, banks and contracts; recording the name ensures clear identification. Although the profit-sharing ratio (option B) is also stated in the deed, that is a separate clause and not the purpose of the name itself. Options C and D are not direct purposes of entering the firm's name in the deed. Exam tip: Memorize "name and address = identity" and keep it distinct from operational clauses like profit-sharing ratio.

The nature (object) of business is written to make the firm's purpose and the scope of its activities clear. This clause in the partnership deed defines what the firm may lawfully carry out, helps prevent disputes between partners, and provides transparency to outsiders such as banks and tax authorities. Options B, C and D are not valid reasons: B (hiding a partner's age) and D (hiding cash sales) are irrelevant/illegal motives, and C (stopping bank interest) is unrelated — a deed cannot prevent bank interest. Exam tip: remember the 'object clause' in the deed indicates permitted business activities and limits, so read that clause when answering related questions.

Direct answer: Option A, to know each partner’s capital. Capital contribution records the amount invested by each partner in the firm. Reasoning: each contribution is identified; the amount is entered in the relevant capital account; later, agreed changes such as additional capital or withdrawals can be tracked. This supports correct accounting and helps settle rights between partners. Option A is correct because the deed makes every partner’s investment clear. Option B is wrong because advertising expense is an operating expense, not the purpose of recording capital. Option C is wrong because a capital clause does not delete the bank account. Option D is wrong because salary tax or tax matters are not the basic reason for stating capital contribution. The deed may also specify fixed or fluctuating capital and related conditions, but the core answer remains A. Memory cue: capital contribution answers “who invested how much?”

A clause providing interest on capital means that partners are entitled to a specified return on the capital they keep invested in the firm, subject to the terms of the deed and applicable partnership law. The deed may state the rate, the period for which interest is calculated, and any conditions affecting the entitlement. For example, if eligible capital is ₹1,00,000 and the agreed annual rate is 6%, the annual interest is ₹6,000 before considering relevant legal limits or accounting treatment. Thus option A is correct: the provision allows interest at the agreed rate; it does not mean that capital can never be returned, that profit must be withheld equally, or that a loan is forgiven. Interest on capital is distinct from interest on a partner’s loan.

The direct answer is A: interest on drawings is charged on a partner’s personal withdrawals from the firm. Drawings are amounts or goods taken by a partner for personal use, not for the firm’s business. Because the partner uses firm resources before the final distribution, the deed may require interest on those drawings. The interest is treated as an adjustment in the partnership accounts, generally increasing the firm’s income or reducing the partner’s entitlement according to the agreed method. Option A is correct because it directly describes the purpose: charging interest on personal withdrawals. Option B is wrong because interest on drawings does not stop the firm’s sales. Option C is wrong because drawings interest does not convert capital into a loan; capital and drawings are separate account matters. Option D is wrong because it has nothing to do with removing a new partner. The amount of interest depends on the deed, rate, amount withdrawn, and sometimes timing of withdrawals. Memory cue: capital brought in may earn interest, while personal money taken out may attract interest on drawings; always follow the partnership deed.

A partner’s salary is compensation for special or additional work performed for the firm, such as managing an important function beyond ordinary participation. Since partners normally act for the common business, such remuneration is not assumed automatically. It must be authorized by the partnership deed or by a valid agreement among the partners.

Thus option A is correct: the provision is useful when a partner gives extra service to the firm. Closing the firm, receiving free goods, or not preparing an account does not create a salary entitlement. The deed records the agreed amount or basis of payment, helping prevent disputes and ensuring that the extra contribution is recognized properly.

Commission may be given for special service or sales effort. In exams treat it as based on the deed.

A condition about maintaining books of account establishes an orderly and verifiable accounting system for the partnership. The governing concept is financial transparency and accountability. Proper books record purchases, sales, expenses, assets, liabilities, capital, drawings, and each partner’s share of profit or loss. These records allow partners to check transactions, prepare financial statements, calculate tax and statutory amounts, trace errors, and resolve disagreements using evidence rather than memory or guesswork. Therefore option A is correct because systematic books support reliable accounting and supervision. The condition is not intended to hide capital or erase profit; in fact, it makes such concealment more difficult. It also does not mean that the firm must stop borrowing, since borrowing is governed by separate authority and financial decisions.

The accounting year is specified to fix the period for preparing profit & loss and final accounts. A defined accounting period ensures correct profit allocation, tax calculation and timely closing of books. Option C may seem plausible because partner remuneration can be mentioned in the deed, but specifying the accounting year is about the reporting period, not about setting salaries. Options B and D are unrelated. Exam tip: when answering, identify the accounting period dates in the deed—those dates determine profit sharing and the timing of final accounts.

Admission of a new partner may change rights and profit ratio. So writing the procedure in the deed is useful.

When a partner retires, the deed clause that specifies how and when amounts due (capital, share of profits, share of goodwill if any, interest) will be settled is directly useful. A clear method of settlement and payment states whether the retiring partner will receive a lump sum, installments, interest on delayed payment, and the timeline. Option B (treatment of goodwill) is relevant but limited to valuation/accounting of goodwill — it does not by itself specify the payment procedure. Option C (formula for calculating the retiring partner's share) helps determine the amount but not how it is paid. Option D (revaluation rule) deals with adjusting asset/liability values, not the settlement mechanism. Exam tip: look for deed clauses mentioning “installment, lump sum, interest, time limit” to identify the settlement/payment condition quickly.

The direct answer is A: the provision helps settle the amount due to the deceased partner’s representative and deal with goodwill. When a partner dies, the partnership accounts must determine what the deceased partner had earned or was entitled to receive up to the date of death. This may include the partner’s capital balance, current account balance, share of profit up to death, accumulated reserves, and other agreed items. Goodwill may also be valued and the deceased partner’s share credited according to the deed or applicable partnership rules. The legal representative then receives the amount due under the settlement terms. Option A is correct because it identifies both major matters mentioned in the question. Option B is wrong because stopping sales discounts is unrelated to settling a deceased partner’s account. Option C is wrong because employee bonus is a separate employment expense and does not settle the partner’s claim. Option D is wrong because changing furniture has no connection with death settlement. The exact calculation depends on the deed and facts, so no fixed amount should be invented. Memory cue: on death, calculate the partner’s entitlement, including agreed goodwill treatment, and settle it with the representative.

Goodwill valuation is required when partners join, retire, or on death so the amount payable/receivable can be calculated and settled. Stating the method in the deed gives an agreed objective basis and prevents future disputes. Option C is a close but incorrect idea — profit‑sharing rules are a separate clause and do not replace a valuation method; options B and D are improper purposes. Exam tip: remember common valuation methods specified in deeds (average profit, super profit, capitalization) and practice numerical adjustments.

A dispute-resolution clause sets out the agreed procedure to follow when partners disagree about management, accounts, authority, profit sharing, or another partnership matter. The governing concept is planned conflict management. The clause may require discussion, negotiation, mediation, arbitration, or a specified legal process before or instead of ordinary litigation, depending on its wording and enforceability. By agreeing on a process in advance, partners can reduce uncertainty, delay, and disruption to the firm’s business. Option A is therefore correct because the clause fixes the method or route for resolving disagreements. It does not increase the weight of goods, determine bank interest, or conceal capital; those subjects are unrelated to dispute resolution.

The deed specifies bank account operation to make clear who may sign and under what conditions, ensuring proper control of payments and avoiding disputes or unauthorized transactions. Choice A is correct because it defines signing authority. Option B is wrong — a bank is not made a partner by such a clause. Options C and D describe unrelated outcomes (withholding profits or converting loans) and are not purposes of an account‑operation clause. Exam tip: look for terms like 'authorized signatories', 'approval limits' and 'mode of operation' in the deed question.

An audit clause ensures regular, impartial inspection of the partnership's books, helping detect errors or irregularities and increasing transparency. Hence making checking of accounts easier and more transparent is the correct benefit. Option B is incorrect because an audit does not automatically increase profits; it only verifies their accuracy. Options C and D are irrelevant — audits do not extinguish capital or waive loans. Exam tip: associate 'audit' with inspection and transparency to answer quickly.

Oral partnership may exist but a written deed gives evidence. In exams view written deed as dispute preventing.

Direct answer: Option A, all partners. A partnership deed is the written agreement that records the mutual consent, rights, duties and responsibilities of the partners. Since every partner is bound by its terms, every partner should normally sign it. Step by step: first, the partners agree on business rules; second, those rules are written in the deed; third, signatures show that each partner accepts those rules. Option A is correct because it confirms the consent of all partners. Option B is wrong because a customer is not a partner merely because the customer deals with the firm. Option C is wrong because a bank manager does not create the partnership agreement. Option D is wrong because an employee is not normally a party to the partnership deed. A signature also helps prevent later disputes about whether a partner accepted a particular condition. Exam cue: deed means partners’ agreement, so look for signatures of all partners.