Partnership Deed

When the deed is silent profits are shared equally. Use capital ratio only when the deed specifically says so.

The governing concept is that a partner’s salary provided by the deed is an appropriation of profit rather than an ordinary operating expense of the firm. It is therefore considered after the net profit or loss has been determined in the Profit and Loss Account. The salary is then brought into the Profit and Loss Appropriation Account. If profit is insufficient, the amount may not be fully covered in the ordinary way and the deed or partnership rules determine the treatment of the deficiency, but the account used for the appropriation remains the Profit and Loss Appropriation Account. Therefore option A is correct. Trading Account measures gross profit, the Profit and Loss Account determines net profit, and Cash Account records cash movements rather than the nature of the appropriation.

Interest on capital is an appropriation and cannot exceed available profit. If profit is low it is allowed proportionately.

Such a special clause makes the interest a charge against profit. It is debited to the Profit and Loss Account as an expense.

For equal monthly drawings the average period is taken as six months. This is useful when specific dates are not given.

Interest on drawings is a charge made when a partner withdraws money or goods for personal use, but it is not automatic. Its calculation requires a provision in the partnership deed, including an agreed rate or method. If the deed is silent, the partners cannot ordinarily charge interest on drawings merely because drawings were made. Therefore the correct choice is option C: it will not be charged.

The other choices are incorrect because interest is not compulsory every year, is not restricted to excess drawings, and does not become payable only when the firm has a loss. The rule about a silent deed is important: agreed terms govern partnership adjustments, and in their absence the standard provisions apply. Since no authorisation is given here, no interest on drawings should be recorded. A rate mentioned elsewhere in a valid agreement would change the treatment.

When commission is after charging commission use profit multiplied by rate divided by one hundred plus rate. Here fifty thousand times ten by one hundred ten gives about four thousand five hundred forty five rupees.

The direct answer is option A: rupees six thousand. The deed says the commission is 10% of profit before charging commission. Therefore the base is the profit already given, ₹60,000. Calculate step by step: commission = 10/100 × ₹60,000 = ₹6,000. The phrase “before charging commission” is important because it means we use the profit before subtracting this commission. Option A is correct. Option B, ₹5,445, is not the result of 10% of ₹60,000; it appears to come from a different type of question, such as commission on profit after charging commission, and cannot be used here. Option C, ₹7,000, is not 10% of ₹60,000. Option D, ₹3,000, is only 5% of ₹60,000. Do not subtract the commission first when the deed explicitly says profit before commission. If the wording had said commission on profit after charging commission, a different formula would be required. Memory cue: “before commission” means percentage × given profit.

The direct answer is option B: six percent per annum. Under the standard Partnership Act rule used in school accountancy, when a partner gives a loan to the firm and the deed does not state the rate, interest is allowed at 6% per year. This is different from interest on a partner’s capital. A partner’s loan is treated as a liability or borrowing of the firm, so the statutory rate applies when the agreement is silent. Option A is wrong because the rate is not zero; silence does not remove the statutory entitlement. Option B is correct because it is the prescribed default rate. Option C is wrong because 12% is not the standard statutory rate for this situation. Option D is wrong because loan interest is not calculated according to the profit-sharing ratio; that ratio is used for dividing profit, not for deciding the legal interest rate on a loan. The interest is generally treated as a charge against profit, meaning it is considered before the divisible profit is shared. Memory cue: partner’s loan, deed silent = 6% per annum.

The loss left after appropriations is shared in the profit sharing ratio. The deed profit ratio remains the final basis.

Under fluctuating capital method all adjustments are made in capital accounts. A separate current account is generally not opened.

The new partner gets a profit share from old partners. Therefore goodwill compensation is given in sacrificing ratio.

The direct answer is option C: salary can be given only after an amendment to the deed or with the consent of all partners. The deed says that all partners will participate in management and that no extra salary is allowed. Therefore, management work is already part of the partners’ agreed duties, and a managing partner cannot demand an automatic separate payment. To create such a right, the partners must change the deed or clearly agree to the remuneration. Option A is wrong because salary does not arise automatically every year when the deed expressly denies extra salary. Option B is wrong because an oral demand by one partner cannot normally change the agreed terms or bind all partners. Option C is correct because an amendment or unanimous consent provides the required authority. Option D is wrong because low profit does not itself create a salary right; in fact, salary may be restricted by the agreement and available profit. The key distinction is between doing management work and having a contractual right to remuneration. Memory cue: extra work alone is not extra salary; authority must come from the deed or all partners.

A dispute clause gives a clear process for future disagreements. It reduces unnecessary litigation and confusion.

The bank operation clause states who will operate accounts and sign cheques. It is important for internal control.

New partner premium compensates old partners for sacrificing profit share. Link it with the sacrificing ratio.

Clear rights and duties reduce disputes in accounting treatment. This helps correct adjustments like salary interest and drawings.

A partnership deed is the main agreement that tells partners how profit or loss will be shared. When the deed clearly states a ratio of three to two, that ratio remains applicable unless the partners formally agree to change it. A partner’s being inactive does not, by itself, cancel that partner’s right to receive the agreed share. Partnership rights arise from the agreement, not simply from the amount of work done during a particular year.

Therefore, the correct choice is B: profit is still shared in the ratio of three to two. The total profit is divided into five equal parts; the first partner receives three parts and the second receives two parts. Giving the entire profit to the active partner would ignore the deed. Equal sharing or sharing according to capital would apply only if an applicable agreement or legal rule required it. The supplied answer is consistent and clearly supported.

Generally losses are shared in the profit ratio when no separate clause exists. If a separate loss ratio is given it will apply.

Interest on capital introduced during the year is calculated on time basis. Reading dates carefully is essential in hard questions.

Direct answer: Option C, zero rupees, is correct. The formula is interest on drawings = drawings × rate × time. The partner withdrew Rs 60,000 at the very end of the year. Thus the time for which the amount was available for use during that accounting year is zero. Calculation: Rs 60,000 × 10% × 0/12 = Rs 0. Therefore no interest is charged for that year. Option A is wrong because Rs 6,000 is 10% of Rs 60,000 for a full year, but the money was not outstanding for a full year. Option B is wrong because Rs 3,000 would represent roughly six months’ interest, which is not the stated timing. Option C works because year-end withdrawal has no time outstanding in that year. Option D is wrong because Rs 500 has no matching calculation. The key is not only the amount and rate; time is equally important. Memory cue: end-of-year drawing means zero time, therefore zero interest.

A withdrawal at the beginning of the year remains outstanding for the full year. Hence ten percent of sixty thousand is six thousand.

A deadline makes the treatment of delayed capital clear. It reduces accounting disputes among partners.

When the accounting year is fixed in the deed the appropriation account is prepared for that period. Changing it needs consent.

A partners personal liability is not a firm liability in the books. If the firm pays it the amount is charged to that partners drawings or current account.