Partnership Deed

Correct answer: A. Financial control

A borrowing limit is a financial control because it regulates how much debt the partnership may undertake and who may approve that borrowing. Debt creates an obligation to repay principal and interest, so an unrestricted borrowing power could increase financial risk, cash-flow pressure and the possibility of unauthorized commitments. By recording the limit in the partnership deed, the partners establish a documented boundary for financial decisions and can hold a partner accountable for exceeding it. Therefore, option A is correct. Production control concerns output and processes, advertising control concerns promotion, and customer control is not the relevant accounting classification here.

Correct answer: A. Partner's conduct and loyalty

The governing concept is a partner’s duty of loyalty and the prevention of conflicts of interest. A clause requiring consent before a partner carries on a separate business regulates conduct outside the firm. An independent business might compete with the partnership, divert customers or business opportunities, misuse confidential information, or reduce the partner’s attention to the firm. Requiring prior consent protects the collective interest and makes the partner’s obligation clear. It does not describe a banking record, a packing procedure or a sales discount. Those matters belong to different operational or accounting areas and do not explain why the deed restricts outside business activity. Hence option A is the only suitable answer.

Correct answer: B. Eight percent

The governing concept is the priority of an express contractual term in the partnership deed. If the deed clearly states that interest on a partner’s loan is 8%, that stated rate is applied in the accounts, subject to applicable law and the exact wording of the agreement. The commonly cited statutory rate of 6% is generally relevant when the deed is silent about interest on a partner’s advance or loan; it does not replace a valid express provision. The profit-sharing ratio is used to distribute profit and does not determine the rate on a loan. Zero percent would also contradict the stated clause. Therefore, the rate to be applied is 8%, and option B is correct.

Correct answer: A. Prevention of misuse of assets

A clause prohibiting personal use of firm property is an internal control designed to prevent misuse of assets. Partnership assets belong to the firm and are held for business purposes; a partner should not treat them as personal property without authorization. Such a rule reduces the risk of unauthorized consumption, loss, damage or an unrecorded benefit to one partner. It also protects fairness among partners and improves accountability for the use of vehicles, cash, equipment or other resources. Thus option A is correct. The clause does not alter the profit-sharing ratio, determine bank interest, or directly increase the number of customers.

Correct answer: A. Transparency and accountability

The governing concept is that partners have a right to obtain information about the firm's affairs and inspect its accounting records. When a partner can examine the books, entries, balances, receipts and supporting evidence can be checked rather than accepted blindly. This makes the accounting process transparent and helps identify errors, omissions or unauthorised transactions. It also makes the persons maintaining the records answerable to the other partners. Therefore option A, transparency and accountability, is correct. Secrecy and sales are not accounting principles created by inspection; depreciation, stock, tax and dividend concern particular accounting items, not the information right created by the deed.

Correct answer: A. Rate written for loan

The governing concept is that a partner's loan and the partner's capital are separate accounting relationships. Capital represents the partner's contribution to the firm's ownership, whereas a loan is an amount borrowed by the firm and repayable according to its terms. If the deed specifies one rate for capital and another for loans, the specific clause governing the loan must be applied to the loan balance. Thus option A is correct. The capital rate cannot be substituted merely because the lender is also a partner. The profit-sharing ratio is used for dividing profit, not for calculating loan interest, and zero interest would ignore an express contractual rate.

Correct answer: A. Written agreement specifying the partners’ rights and duties

A partnership deed is the written agreement that records the terms and conditions governing a partnership firm. It may specify the partners’ capital contributions, profit-sharing ratio, drawings, interest, salary or commission, duties, authority, and procedures for resolving disputes. Therefore, option A is correct because it directly describes the deed as a written statement of the partners’ rights and duties. A sales receipt merely evidences a sale, a bank loan document records borrowing, and a tax challan records payment or liability of tax; none of these documents establishes the internal relationship among partners. A clear deed provides evidence of agreed terms and helps prevent later misunderstandings.

Correct answer: A. A partner’s personal household expenses

A partnership deed normally contains matters that regulate the business relationship between the firm and its partners. The profit-sharing ratio, each partner’s capital contribution, and rules regarding drawings are all relevant terms and may be expressly recorded in the deed. A partner’s personal household expenses, however, are private matters and do not ordinarily form part of the firm’s governing agreement. Thus, option A is correct. If the firm pays such a personal expense on behalf of a partner, the payment may be treated as that partner’s drawings, but the private expense itself is not normally a standard provision of the deed. The other three choices directly concern partnership accounting and administration.

Correct answer: A. Division of duties

The governing concept is the division of duties among partners. When the partnership deed assigns the purchase department to A and the sales department to B, it distributes managerial work and fixes responsibility for particular business functions. This arrangement helps partners know who will supervise purchasing, selling, records, and related decisions; it also reduces duplication, confusion, and conflict. Interest on capital is a return allowed on money invested by a partner, tax on profit is a statutory payment, and the date of drawings is used to calculate interest on withdrawals. None of those alternatives concerns the assignment of departments. Therefore option A, Division of duties, is correct.

Correct answer: A. Important management decision

The governing concept is the distinction between a major management decision and a routine operating activity. Opening a new branch generally requires substantial capital, premises, employees, marketing, administration, and continuing operating expenditure. It may also expose the firm to significant commercial risk and alter its scale of operations. Therefore a deed may require approval of all partners before this expansion is undertaken. A daily minor purchase is a routine transaction, while interest on drawings and salary accounting are calculations or accounting treatments rather than expansion decisions. The requirement for consent is thus connected with an important management decision. Hence option A is correct.

Correct answer: A. No

The governing concept is the default rule applied when the partnership agreement does not provide for remuneration. A partner is not automatically entitled to salary merely because the partner works in or manages the firm. Salary or commission becomes payable only when the partnership deed, or another valid agreement among the partners, expressly allows it. Therefore, if there is no partnership deed and no separate agreement, the answer is No, option A. The amount of capital contributed does not by itself create a salary right. A loss-making year also does not establish such entitlement. Thus options B, C and D confuse contractual remuneration with unrelated conditions.

Correct answer: A. Equally

The partnership deed normally states the profit-sharing ratio. If the deed is silent on that matter, the general rule under partnership principles is that partners share profits equally, unless a valid contrary arrangement is established. The amount of capital contributed does not automatically determine the profit ratio. Thus, even when the partners’ capitals are unequal, the remaining profit is divided in equal proportions. Capital ratio, drawings ratio, and an interest ratio are not substitutes for an agreed profit-sharing ratio. Therefore option A is correct. This rule concerns sharing profit; it does not mean that capital balances themselves become equal.