Partnership Deed

Correct answer: A. Equally

When the deed is silent, profits are shared equally under the Partnership Act. Remember this default rule for exams.

Correct answer: A. Only up to available profit

Interest on capital is an appropriation of profit, so it is allowed only when profit is available. It is generally not allowed in loss.

Correct answer: A. Income of the firm

Interest on drawings is charged from the partner, so it is income for the firm. In exams, it is added to profit.

Correct answer: A. Not payable

If the deed has no provision, partner salary is not allowed. Working more does not automatically create salary right.

Correct answer: A. Six percent per annum

If the deed is silent, interest on partner loan is payable at six percent per annum. This is different from interest on capital.

Correct answer: A. Not payable

Direct answer: Option A, not payable. A partnership deed is the agreement that states the partners’ special rights, duties and financial arrangements. Interest on capital is not automatically available merely because a partner has contributed money. Step by step: partners introduce capital; the deed is checked for an interest-on-capital clause; if the deed provides it, interest may be calculated according to the stated rate and conditions; if the deed is silent, no such interest is allowed under the usual Partnership Act rule. Option A is correct because silence means there is no contractual basis for paying interest on capital. Option B, always six percent, is wrong because six percent is not a general rule for interest on capital in a silent deed; a rate would have to be provided by the agreement or applicable law. Option C, always bank rate, is wrong because the bank rate does not automatically determine partners’ capital interest. Option D, profit equal to capital, is wrong because capital and profit are different concepts, and profit is distributed according to the agreed ratio or statutory rule, not as an amount equal to capital. A careful student should also note that if interest is properly provided but profit is insufficient, textbook rules may impose further conditions; that does not change the present silent-deed answer. Memory cue: no clause, no interest on capital.

Correct answer: A. Because final division of profit and loss is based on it

Profit sharing ratio is the basis for dividing remaining profit or loss after appropriations. It must be stated clearly.

Correct answer: A. Proving terms will be difficult

An oral agreement may exist legally, but proving terms is difficult. A written deed is safer in exams and practice.

Correct answer: A. In capital account with agreement or current account as per deed

Under fixed capital method, capital accounts do not change without agreement. The nature of extra contribution is decided by the deed.

Correct answer: A. Rs 20000 proportionately

Interest on capital cannot exceed available profit because it is profit appropriation. Distribute the available profit proportionately.

Correct answer: A. Terms of admission of new partner

Admission terms clarify changes in capital, profit share, and rights. This reduces future disputes.

Correct answer: A. In profit sharing ratio

Generally, losses are shared in the same ratio as profits. A different clause will override this.

Correct answer: A. It gives a clear process for resolution among partners

A dispute settlement clause pre-decides the process of decision. It gives legal and practical safety.

Correct answer: A. Restriction on competing business

This clause protects the firms interest. A partner should not compete against the firm without consent.

Correct answer: A. Mutual agency and trust

Partnership is based on mutual trust. Admission of a new partner generally needs consent of all partners.

Correct answer: A. To make settlement clear and fair

On death, capital, profit share, and other dues must be calculated. The deed brings clarity to settlement.

Correct answer: A. Partnership for fixed term

A fixed term partnership may end when the stated period is over. The period clause is an important exam clue.

Correct answer: A. The transaction is outside the deed objective

The firms objective may be limited by the deed. A transaction outside it raises authority and liability issues.

Correct answer: A. Books of accounts and audit arrangement

The deed may provide checking and inspection of books. This improves transparency among partners.

Correct answer: A. Extra drawings may be restricted or charged interest as per deed

The direct answer is option A: the excess drawings may be restricted or may attract interest according to the deed. Drawings are amounts taken by a partner from the firm for personal use; they are not sales, salary, or profit. The stated monthly limit is Rs 10,000, but the partner takes Rs 16,000. Therefore the amount above the limit is Rs 6,000 for that month. The exact treatment depends on the partnership deed: it may prohibit or restrict the excess, or it may charge interest or apply another agreed consequence. Option A is correct because it recognizes this contractual treatment. Option B is wrong because a personal withdrawal cannot automatically become firm profit. Option C is wrong because no goods have been sold, so it is not sales. Option D is wrong because salary requires an agreed salary arrangement and an extra withdrawal does not automatically become salary. Exam cue: drawings reduce the partner’s entitlement or account; they do not create revenue.

Correct answer: A. Debit Profit and Loss Appropriation Account

A reserve created before distributing profit is an appropriation of profit. It does not represent a trading expense and does not mean that cash must immediately be placed in a separate account. The firm first transfers the specified amount from the available profit through the Profit and Loss Appropriation Account. In journal terms, the Profit and Loss Appropriation Account is debited and the Reserve Account is credited.

Thus option A is correct. Debiting the appropriation account reduces the profit available for distribution among partners, while the credit to the reserve records the retained amount. Crediting the Trading Account, debiting Cash, or crediting Drawings would not describe the creation of a partnership reserve. The deed’s instruction must be followed before the remaining profit is divided. This treatment separates profit allocation from ordinary business operations.

Correct answer: A. Debit of Profit and Loss Appropriation Account

Partner commission is an appropriation of profit. It is not shown in Trading Account as a normal expense.

Correct answer: A. Check from deed on which profit commission is calculated

A partner may receive more than one form of remuneration, such as a fixed salary and a commission. The salary amount is clear here, but the commission must be calculated on the base specified in the partnership deed. It may be based on net profit, profit before charging the commission, or profit after a specified adjustment such as salary. The exact wording controls the accounting treatment.

Therefore, option A is correct: first check from the deed the profit on which the 5% commission is calculated. It is not automatically a commission on sales. The salary and commission do not become capital; they are appropriations of profit, subject to the agreed conditions. Reading the deed first avoids an incorrect calculation.

Correct answer: A. Profit ratio

The profit ratio stated in the deed applies to profit distribution. Capital ratio applies only if the deed says so.

Correct answer: A. Valid because partners have agreed

Partners may decide profit ratio by mutual agreement. Capital ratio and profit ratio need not be the same.