Partnership Deed

Correct answer: A. The firm's business and legal address is clearly specified

Specifying the firm's address identifies the place of business and legal address; it is needed for legal notices, tax correspondence and accounting records. Writing the address does not automatically register the firm or secure loans — those require separate statutory procedures. Exam tip: remember that 'address' relates to location and communication, not automatic registration or finance approval.

Correct answer: A. To state how long the firm will continue

The duration clause describes the intended period for which the partnership will operate. The governing concept is the nature and continuity of the partnership. The deed may state a fixed term, such as five years or until completion of a particular project, or it may indicate that the partnership is at will, meaning its continuation is not tied to a fixed ending date and may be ended according to the applicable agreement and law. Recording duration helps partners plan investment, contracts, renewal, and possible dissolution. Therefore option A is correct because it states how long the firm is expected to continue. The clause does not describe the colour of goods, reduce the number of customers, or remove bank charges.

Correct answer: A. In the ratio \(3:2\)

The partnership deed governs profit sharing; the ratio stated in the deed is applied. So if the deed gives the ratio \(3:2\), profits are divided into 5 parts with partner A getting 3 parts and partner B 2 parts. 'Equally' is only correct when the deed is silent; 'in proportion to capital' or 'based on salaries' apply only if the deed or agreement specifies them. Exam tip: always check the deed first — its provisions override default rules.

Correct answer: A. It will be allowed as per deed

Direct answer: Option A, it will be allowed according to the deed. The deed is the partners’ agreed authority for special adjustments. If it states interest on capital at 8%, the firm may calculate and allow that interest according to the stated conditions, period and applicable accounting rules. Step by step: identify the capital amount; apply the permitted rate, such as 8%; consider the relevant period; record the resulting amount in the appropriate accounts. Option A is correct because the deed expressly provides the rate. Option B is wrong because the clause does not say interest is prohibited. Option C is wrong because the interest is a partnership adjustment for the partner, not payment only to a bank. Option D is wrong because customers have no right to receive it. The exact treatment can depend on profit and legal provisions, so “as per deed” is the safe answer. Memory cue: written rate plus capital means calculate as agreed.

Correct answer: A. Interest at (5%) will be charged on drawings

The deed has a clear rate so interest on drawings will be charged. It is treated like income for the firm.

Correct answer: A. Minimum profit of a partner

A guarantee clause may ensure minimum profit to a partner. It is adjusted in profit distribution.

Correct answer: A. Written provisions of partners' rights and duties

The partnership deed contains the express written terms that set out partners' rights, duties, management rules and other conditions. Thus the provision that specifies rights and duties is the correct choice. The profit-sharing ratio only determines how profits are divided; capital contributions relate to investment and claims but do not define all rights/duties; the firm's nature and duration state the business objective and time frame but do not set partners' roles. Exam tip: look for words like "rights", "duties" or "express provisions" in the deed when answering such questions.

Correct answer: A. On the basis of an agreement (partnership deed)

By definition, a partnership arises from an agreement between persons to share profits — i.e., it is formed on the basis of an agreement (partnership deed). Birth, family ties, friendship, or possession of a customer list/assets do not by themselves create a partnership. The closest distractor is C (friendship) because friendship might accompany an agreement, but legally a partnership requires a deliberate agreement on terms. Exam tip: Memorize the Partnership Act definition — the agreement to share profits is the key element.

Correct answer: A. No — in absence of a deed a partner is not entitled to commission

Under partnership principles a partner is not entitled to salary or commission by default; such remuneration requires an express provision in the deed or a separate agreement among partners. Therefore, in the absence of a partnership deed a partner has no automatic right to commission. Option C is incorrect because it refers to an express provision in the deed (which does not exist here); option D is wrong because commission is not determined merely by capital contribution. Exam tip: remember the default position — no salary/commission/interest without agreement.

Correct answer: A. The term of deed

Direct answer: Option A, the term of the deed. The Partnership Act contains default rules for matters on which partners have not agreed. The partnership deed records the partners’ own agreement, so an applicable deed term is normally followed before a default statutory rule. Reasoning: identify the subject; check whether the deed contains a clear term; if it does, apply that term; if it is silent, use the Act’s default rule. Option A is correct. Option B is wrong because a shop rule cannot override the partners’ contract. Option C is wrong because a customer has no authority to decide partners’ internal rights. Option D is wrong because an employee cannot order how partners divide profits or bear obligations. This does not mean every private term can defeat mandatory law; compulsory legal requirements still matter. For this school question, the intended principle is that the deed governs where it provides an agreement. Memory cue: deed first for agreed matters, Act’s default rules when the deed is silent.

Correct answer: A. To protect the firm against business risks and compensate for losses

An insurance clause is meant to provide cover for business risks (fire, theft, accidents, key-person death, etc.) so that losses can be compensated and the firm's continuity secured. The deed may require insurance on assets, stock or partners' lives so insurance proceeds meet liabilities or compensate for loss. Option B is wrong because insurance transactions are recorded in the books and cannot be used to conceal profits. Options C and D are not purposes of insurance. Exam tip: when reading deed clauses, associate insurance with risk management and continuity, not with capital manipulation or hiding income.

Correct answer: A. Special term

A deed may contain general and special terms. An expense related term may be a special management rule.

Correct answer: A. Profit ratio and adjustment terms

While solving check profit ratio and terms like interest salary and commission first. This avoids wrong distribution.

Correct answer: A. Both partners will receive equal profit

A profit-sharing ratio shows how distributable profit is divided among partners. A ratio of 1:1 means the profit is split into two equal parts — each partner gets one part (i.e., 50% each). Options B and C are incorrect because they claim only one partner receives all profit, contradicting 1:1. Option D is irrelevant since the bank is not a partner and cannot receive partnership profit under the deed. Exam tip: convert the ratio to fractions or percentages (1:1 → each gets 1/2 = 50%) to verify quickly.

Correct answer: A. To clarify who can borrow

A borrowing-power clause defines who may obtain loans or create borrowing obligations on behalf of the partnership and within what limits. The governing concept is authority and liability. The deed may require the consent of all partners, permit a named partner to borrow for ordinary business, set a monetary limit, or require approval for security and guarantees. Clear authority reduces the risk that one partner will undertake an unauthorised obligation that exposes the firm or the other partners to financial loss. Thus option A is correct because the clause clarifies who can borrow and under which conditions. It does not stop profits, erase salaries, or make goods free. Those alternatives have no logical connection with borrowing authority.

Correct answer: A. Rule for partner withdrawing capital

Direct answer: Option A, the rule for a partner withdrawing capital. Capital is the amount introduced by a partner for the firm’s business. A deed may state whether capital can be withdrawn, how much may be withdrawn, when permission is needed, and how the withdrawal is recorded. Step by step: a partner takes money or assets out; the partner’s capital or current account is affected; the deed determines the permitted procedure and any conditions. Option A is correct because it directly concerns withdrawal of a partner’s capital. Option B is wrong because returning goods is a sales or purchase matter involving a customer, not partner capital. Option C is wrong because a bank’s return of interest is a banking transaction, not capital withdrawal. Option D is wrong because salary repayment by an employee is unrelated. Do not confuse drawings with permanent capital: drawings are usually personal withdrawals against the partner’s interest, while capital is the invested amount. Exam cue: capital withdrawal means read the partner’s account and deed conditions.

Correct answer: A. To decide the process of closing the firm

On dissolution assets and liabilities are settled. The deed can clarify the process in advance.

Correct answer: A. To clarify loss distribution

A partnership deed records the agreed rules governing the partners and the firm. Profit sharing and loss sharing are often the same, but the partners may agree to use different ratios. In that situation, the loss-sharing ratio should be written separately and clearly in the deed. This prevents confusion when the firm suffers a loss and provides an exact basis for preparing the accounts.

Therefore option A, “to clarify loss distribution,” is correct. The purpose is not to hide profit, increase a partner’s salary, or close a loan. A written clause is especially useful because partnership accounting follows the agreement between the partners. If the deed gives a specific loss ratio, that ratio is applied when the loss is transferred among partners. If no separate ratio is stated, the applicable partnership rule would be considered, but a clear deed clause has priority.

Correct answer: A. Each partner's responsibility is clearly defined

Specifying division of work in the deed sets out each partner’s duties, authority limits and reporting lines. This reduces conflicts, improves management efficiency and makes it easier to hold partners accountable for tasks. Option D is incorrect because division of work does not change profit-sharing unless the deed separately specifies profit ratios; B and C are irrelevant consequences. Exam tip: always record duties, authority, remuneration and profit-sharing clauses clearly in the deed to avoid future disputes and confusion.

Correct answer: A. Admitting a minor only to benefits

A minor cannot become a full partner but may be admitted to benefits. This rule is important for exams.

Correct answer: A. To ensure regular discussion and decision-making

Stating meeting frequency in the deed ensures partners meet at regular intervals to review business performance, examine accounts and take policy decisions. Regular meetings promote oversight, timely dispute resolution and transparency. Option B is incorrect because meeting frequency is not meant to conceal losses; options C and D are irrelevant — frequency does not instruct account closure or grant extra authority to one partner. Exam tip: When the deed mentions 'frequency', think regular oversight, coordination and decision-making.

Correct answer: A. It is written evidence of mutual rules of partners

A partnership deed is written evidence of partners' rules. Remember it as a basic document of the firm.

Correct answer: A. To clarify future changes

Admission and exit can change profit ratio and rights. The deed clarifies the process for such changes in advance.

Correct answer: A. The period of profit distribution

A partnership deed records the terms agreed by the partners, including the time or period at which profits are to be distributed. The word “monthly” identifies an interval of one month and therefore relates to the period or frequency of profit distribution. Hence, option A is correct. This clause does not mean that partners are returning their capital, because capital repayment is a separate transaction governed by different terms. It does not waive a loan, since a loan waiver concerns cancellation of a liability. It also does not record the purchase of goods, which is a trading transaction. The monthly term tells us when distribution occurs; it does not by itself determine the total profit or change the partners’ capital balances.

Correct answer: A. To decide the accounting method of capital accounts

Fixed or fluctuating capital method changes the presentation of accounts. This term in the deed keeps accounting clear.