Partnership Deed

Deficiency is the difference between guaranteed amount and actual share. Here Rs 50000 minus Rs 44000 equals Rs 6000.

A guarantee by one partner protects another partner against a stated deficiency, usually in the amount of profit or minimum share promised to that partner. If B is short by Rs 7,000 and A has guaranteed B’s amount in the deed, A must bear that shortfall according to the guarantee. The deficiency is therefore treated as a charge against A’s share, subject to the exact terms of the deed.

The amount of Rs 7,000 is not taken from B’s drawings, the firm’s sales, or bank interest. It is adjusted against the share of the partner who gave the guarantee. Hence option A, “from A’s profit share,” is correct. The guarantee does not generally mean that the firm has incurred a sales or banking expense; it is a settlement between the partners under their agreement.

Reserve is created before profit distribution when the deed says so. In exams carefully follow the given order.

A mid year drawing carries interest for six months. Twelve percent on Rs 20000 for half year is Rs 1200.

Business objective shows for what work the firm is formed. It clarifies partners authority and limits.

Partnership is based on trust so transfer of share may be restricted. Such restriction is clearly written in the deed.

Direct answer: Option A, transparency and control, is correct. Equal inspection rights allow every partner to see the same accounting information, including transactions, assets, liabilities, income, and expenses. This reduces secrecy and helps partners detect errors, misuse of funds, or unauthorized entries. It also allows them to participate responsibly in decision-making and maintain trust. Option A works because transparency means information is openly available, while control means partners can review and monitor the firm’s activities. Option B is wrong because inspecting books does not directly increase the selling price of goods or the business. Option C is wrong because tax obligations are determined by law and cannot be removed simply by inspecting accounts. Option D is wrong because looking at books does not end a loan; repayment or a separate agreement is required. The right is about information and supervision, not changing prices, taxes, or liabilities. Memory cue: inspection creates visibility, and visibility supports trust and control.

An audit mandated by the deed is an obligation of the firm and relates to the firm's accounts; hence the audit fee is a revenue expense of the firm (debited to Profit & Loss and borne by the firm). Option B (partners' drawing) is incorrect because drawings are personal withdrawals by partners, not firm liabilities for mandatory services. Options C and D are wrong since they refer to capital treatment or distribution of profits, whereas audit fee is an operating expense. Exam tip: always read the deed—if it imposes the obligation on the firm, classify the payment as a firm expense.

Partners are free to agree unequal terms in the partnership deed. If the deed expressly provides that A will receive interest on capital and B will not, that provision is valid provided it does not contravene any statutory law. Option B is incorrect because there is no requirement that all partners must receive equal interest — equality arises only under default rules when the deed is silent. Option C is incorrect since paying interest on capital is not inherently illegal for partnerships; it depends on the deed and applicable law. Option D gives a useful caveat (statutory/tax compliance) but does not change the core rule that a clear deed agreement governs. Exam tip: always check the deed first — default partnership rules apply only when the deed is silent or ambiguous.

If there is a clear special clause, accounting is done as per the deed. In exams distinguish general rule from special clause.

A partnership formed for a particular venture may end when that work is completed. Watch the duration or objective clause.

On death, the deceased partner may be entitled to share of goodwill. The method in the deed makes settlement clear.

As a general rule, every partner may take part in the business. If the deed gives a different condition, it applies.

The key point is that the deed's wording controls treatment. If the deed expressly treats salary as a firm expense it is charged to the Profit & Loss (even if this increases the firm's loss). If the deed treats salary as an appropriation of profits, it can only be paid out of distributable profits and cannot be taken in a loss situation unless there is an express contrary provision. Option B (availability of distributable profit) is a relevant consideration but secondary — it only matters if the deed treats salary as an appropriation. Exam tip: read the deed wording literally for phrases like “charged to profit & loss” or “to be paid out of profits” to decide the correct accounting treatment.

Total ratio = 4 + 1 = 5. B's share = (1/5) × Rs 75,000 = Rs 15,000. Option B (Rs 60,000) is a common distractor because it equals A's share (4/5 of Rs 75,000) — students sometimes swap partners or use the wrong ratio. Options C and D are numerically incorrect for 1/5 of the total. Exam tip: Always add the ratio parts first, then compute each partner's share as (partner's ratio / total ratio) × total profit.

The nature of extra amount from partner is decided by the deed. Rules for loan interest and capital interest may differ.

On retirement, assets and liabilities may be revalued. The resulting profit or loss is shared among partners.

Premium on admission is generally brought for goodwill. It compensates old partners for their sacrifice.

The direct answer is option A: income and expenses will be recognized on an accrual basis. Accrual accounting records the economic event when income is earned or an expense is incurred, even if cash has not yet been received or paid. Step by step, goods or services may be supplied and income becomes earned; or an expense may become due; the entry is recorded at that time; later cash receipt or payment is recorded separately. Thus outstanding expenses, prepaid expenses, accrued income, and income receivable can be considered where relevant. Option A is correct because it states the meaning of accrual basis. Option B describes a cash-only approach and ignores credit transactions. Option C is opposite to accrual accounting because outstanding items are recorded, not omitted. Option D is wrong because capital introduced by a partner is a financing contribution, not an ordinary business expense. Exam cue: accrual means ‘earned or due’, not simply ‘cash received or paid’.

Calculation should follow the priority given in the deed. Special rights are adjusted first and remaining profit is shared.

When the deed contains an arbitration (panch) clause, disputes must ordinarily be referred to the arbitrator/panch as the first mode of settlement because it is an agreed alternative dispute resolution (ADR). Courts usually expect parties to follow the deed’s arbitration provision before litigating. Option C (stopping drawings) is merely an internal management step by partners and does not fulfill a deed’s arbitration requirement; options B and D are unrelated remedies. Exam tip: always check the partnership deed for an arbitration/panch clause — if present, that procedure takes precedence before approaching court.

Total ratio is five and the third partners share is one fifth. One fifth of Rs 100000 is Rs 20000.

Minimum capital condition limits partners withdrawals. It helps maintain financial stability of the firm.

Allowance to a partner may usually be appropriation but deed wording is decisive. In exams identify its nature from wording.

The deed has made opening capital the base. Additional capital earns interest only if the clause allows it.