Partnership Deed

Correct answer: A. On the equal limit given in the deed

Direct answer: Option A is correct. The deed expressly gives each partner the same drawing limit. Therefore that equal limit is applied to each partner independently, even though the partners have different profit-sharing ratios. Profit ratio answers the question of how profit or loss is divided; it does not automatically determine how much each partner may withdraw. Option A works because a clear special condition in the deed governs drawings. Option B is wrong because the profit ratio is a different matter and cannot replace the stated drawing limit. Option C is wrong because capital ratio does not apply unless the deed specifically links drawings to capital. Option D is wrong because age has no accounting connection with the agreed limit. For example, if the equal limit is Rs 20,000 each, every partner has that limit unless another clause changes it; the profit ratio does not turn it into unequal limits. Exam cue: apply each clause to its own subject—profit ratio for profit, drawing limit for drawings.

Correct answer: A. Debited as expense

Interest on a partner’s loan is a cost incurred by the firm for using money lent by that partner. It is different from interest on capital, which is generally an appropriation of profit according to the partnership agreement. Loan interest is treated like other business expenses because the firm has to pay it before deciding how the remaining profit will be distributed among partners.

Therefore, when the deed makes this interest payable, it is debited to the Profit and Loss Account as an expense. It is not shown later in the Profit and Loss Appropriation Account. The payment is connected with the firm’s borrowing, not with the division of profit, so option A is correct. The other choices incorrectly describe it as drawings, sales, or a later appropriation.

Correct answer: A. Rs 8000

Core idea: ‘commission of 10% on net profit’ means take 10% of the stated net profit (assuming the problem gives the net profit after all adjustments). Calculation: 10% of Rs 80,000 = Rs 8,000, so the commission is Rs 8,000. Closest distractor B (Rs 8,800) is incorrect — it corresponds to an incorrect base or wrong percentage calculation; C and D are similarly wrong calculations. Exam tip: always check whether the given “net profit” is before or after charging the commission. If the profit given is before charging the commission, use the relation
\(\text{Commission}=\dfrac{p}{1+p}\times\text{Profit before commission}\) where p is the rate in decimal (e.g. 0.10).

Correct answer: A. Commission must be calculated by including it in the base adjustment

A commission calculated after charging commission is different from a commission calculated on profit before commission. The commission itself reduces the profit on which it is based, so the amount cannot be found by simply multiplying the original profit by the rate. The commission must be treated as part of the adjustment to the profit base. This is commonly called a commission on profit after commission and requires an appropriate algebraic formula when the rate is given.

Therefore, choice A is the best answer: commission must be calculated by including it in the base adjustment. If profit before commission is represented by P and the rate is r, the commission C satisfies the relationship C = r(P − C), with r written as a decimal. Solving gives C = rP/(1+r). The question gives no rate, so no numerical amount can be calculated, but the required method is clear. The supplied answer is consistent.

Correct answer: A. Sudden rights and liability disputes

In insolvency, disputes may arise about capital and liabilities. The deed gives clarity by setting the process earlier.

Correct answer: A. Adjusted among old partners in old ratio

Old losses are not charged to incoming partner when the deed says so. They are adjusted among old partners.

Correct answer: A. On profit ratio given in deed

Active or sleeping status does not automatically change profit ratio. Profit is shared according to the ratio in the deed.

Correct answer: A. Carefully apply given information and general partnership rules

In ambiguity, apply clear information first and then general rules. Do not assume any rate or ratio without basis.

Correct answer: B. Consent of all concerned partners

A deed is an agreement among partners, so changes also need consent. In exams, treat amendment like a fresh agreement.

Correct answer: B. Only on opening capital

The deed clearly makes opening capital the base. Additional capital gets interest only if separately provided.

Correct answer: A. Unauthorized liability

Such a clause protects the firm from liabilities created without consent. A partners authority can be limited by the deed.

Correct answer: A. Profit and Loss Account

Direct answer: Option A, Profit and Loss Account. The key is the phrase ‘deducted before profit distribution.’ A donation made by the firm for business or charitable purposes is first treated as an expense when arriving at net profit, unless the facts clearly say it is an appropriation or a distribution from an already determined profit. Step by step: identify the donation as a firm expense; record it on the debit side of the Profit and Loss Account; subtract it from revenue and other income after relevant expenses; calculate the resulting net profit; then transfer that profit to the Profit and Loss Appropriation Account for distribution. Option A is correct because the question expressly says it must be deducted before distribution. Option B, Drawings Account, records personal withdrawals by partners, not a firm’s donation expense. Option C, Capital Account, records capital introduced, withdrawn or adjusted, not ordinary operating expenses. Option D, General Reserve Account, is used when an amount of profit has already been appropriated and set aside; it is not the first place for recording the expense. The wording is important: a partner’s personal donation could be treated differently, but the stated treatment identifies it as a firm expense. Memory cue: expense before net profit goes to Profit and Loss; appropriation after net profit goes to Appropriation.

Correct answer: B. Losses

A minor may be admitted to benefits of partnership but is not personally liable for losses. Remember the difference between benefit and loss.

Correct answer: B. Rs 10000

Direct answer: Option B, Rs 10,000, is correct. The phrase “after charging such commission” means commission is calculated on profit after commission, not on the full profit before commission. Let the commission be C. Profit before commission is Rs 1,10,000, and the rate is 10%. Thus C = 10% of (1,10,000 − C). Using the standard shortcut for commission after charging commission: C = profit before commission × rate/(100 + rate) = 1,10,000 × 10/110 = Rs 10,000. Check: profit after commission is Rs 1,00,000, and 10% of it is Rs 10,000. Option A is wrong because Rs 11,000 is 10% of the profit before commission. Option C is wrong because Rs 9,000 does not satisfy the formula. Option D is wrong because Rs 12,100 is more than the correct commission and has no valid basis. Exam cue: commission after charging = profit before commission × rate/(100 + rate).

Correct answer: A. Protection of original records

Original books are firm property and evidence. Copy rights provide transparency while protecting original records.

Correct answer: B. Rs 3000

Use I = P × R × T. Here P = Rs 50,000, R = 12% p.a., T = 6/12 = 0.5 year. So I = 50,000 × 12/100 × 0.5 = Rs 3,000. Option A (Rs 6,000) is incorrect because it represents interest for a full year at 12%. Exam tip: always convert months to fraction of a year and use the annual rate when calculating partner loan interest.

Correct answer: A. Adjusted out of total firm profit

When guarantee is by the firm, deficiency is adjusted before final profit distribution. Here the deficiency is Rs 8000.

Correct answer: B. For the firm

Penal interest charged on drawings is collected from the partner, so it constitutes income of the firm. Accounting entry typically debits the partner’s drawings/current account and credits the interest on drawings (treated as firm income), which is shown in the Profit & Loss account. Option A is wrong because the interest is not the partner’s income but an amount payable by the partner. Exam tip: remember — interest on capital is partner’s income; interest on drawings is firm’s income.

Correct answer: B. Retirement

On retirement, share in goodwill may be important in settlement. If the deed restricts it, the deed applies.

Correct answer: B. Rs 16,000

Ten percent means one-tenth of the profit. Calculation: Rs 160,000 × 10/100 = Rs 16,000, so the fund equals Rs 16,000. Closest distractor: Rs 15,000 is a near estimate but incorrect (it would represent about 9.375%). Exam tip: convert percent to a decimal (0.10) and multiply the profit to get the amount quickly.

Correct answer: A. Confidentiality and loyalty

Direct answer: Option A, confidentiality and loyalty. Partnership is based on mutual trust, good faith and the duty to protect the firm’s interests. Confidential business information may include customer lists, prices, methods, plans, financial data or trade secrets. Step by step: a partner receives information because of the partnership position; that information belongs to the business context, not to the partner for unrestricted personal use; the partner must act honestly and avoid harming the firm; therefore the deed may prohibit disclosure to outsiders. Option A is correct because keeping business information private and remaining faithful to the firm are duties of confidentiality and loyalty. Option B, equal drawings, concerns whether partners withdraw equal amounts; it has nothing to do with information. Option C, capital equality, concerns the amount or proportion of capital contributed; it does not regulate secrecy. Option D, bank discount, is a banking or bill-related financial matter and has no connection with a partner’s duty not to disclose information. The clause protects the firm even though it may be written specifically in the deed. A weak student should distinguish a behavioural duty from an accounting entry: this is a conduct principle, not a capital or profit calculation. Memory cue: secrets protected means confidentiality; firm’s interest protected means loyalty.

Correct answer: A. Like an expense due to special clause

Normally partner salary is appropriation, but a clear special clause can change the result. Wording of the question is decisive.

Correct answer: A. Zero

B's share by ratio is \(\frac{3}{5+3}=\frac{3}{8}\). B's actual share = \(\frac{3}{8}\times 64000 = 24000\) Rs. The guaranteed amount is also Rs 24000, so there is no deficiency. The closest distractor (e.g. Rs 6000) arises from an incorrect calculation of the share or difference; verify the fraction first. Exam tip: always compute the partner's fractional share of total profit before comparing with the guaranteed amount.

Correct answer: A. Breach of authority limit

The deed can limit a partners spending power. Spending beyond the limit raises issues of consent and liability.

Correct answer: A. Settlement of old rights

The incoming partner is not given share in old results when the deed says so. Old partners settle their old rights.