Partnership Deed

Correct answer: B. The concerned partners drawings or current account will be debited

Payment of a personal expense is treated as drawings of that partner. Debit the concerned partners account.

Correct answer: A. To ensure reliability and transparency of the accounts

The primary purpose of an audit clause is to provide for independent verification of the books so that accounts are reliable, accurate and transparent. An audit helps detect errors or fraud and confirms correct profit allocation among partners. Option C is related but not the main purpose — audits may reveal irregular drawings, yet the core aim is overall verification and transparency. Exam tip: when a deed mentions 'audit' or 'books to be audited', choose the option mentioning verification, accuracy or transparency.

Correct answer: B. Recover as per deed or adjust in current account

Excess drawings may create a debit capital balance so deed based correction is needed. Recovery or current account adjustment may be used.

Correct answer: A. Withdraw excess capital or bring deficient capital

To maintain fixed capital ratio excess or deficient capital is adjusted. In exams compare target capital with actual capital.

Correct answer: A. To reduce disputes over value of goodwill and assets

A prewritten valuation method protects partners interests. It makes admission and retirement accounting clearer.

Correct answer: B. In Profit and Loss Appropriation Account as an appropriation

The governing concept is the classification of a transfer to reserve. When a partnership deed directs that a portion of an already determined profit be transferred to a reserve, the transfer is not an expense incurred to earn that profit. It is an appropriation made after net profit has been ascertained, and it is shown on the debit side of the Profit and Loss Appropriation Account. Therefore option B is correct. Treating it as an expense before net profit would understate the operating result; recording it as income in Cash Account would misclassify the transaction; and showing it as sales in Trading Account would have no accounting basis. The reserve represents retained profit set aside for the firm’s stated purpose.

Correct answer: A. To control the risk of the firm and partners

The governing concept is control of authority and financial risk in a partnership. A personal guarantee can create a substantial contingent obligation: if the original borrower fails to pay, the guarantor may have to meet the liability, and the transaction may also affect the firm’s interests or reputation. Requiring consent from all partners ensures that no partner undertakes such a significant commitment without the knowledge and approval of the others. Hence option A is correct. The clause is a safeguard against unauthorized exposure and helps protect both the firm and individual partners. Increasing sales, reducing stock, and distributing salary are operational or accounting activities and do not explain why unanimous consent would be required before giving a guarantee.

Correct answer: B. Profit may have to be given to the firm

Profit from a competing business may violate duty to the firm. The partner may have to account for that profit to the firm.

Correct answer: A. Mutual trust and control among partners

Partnership is based on personal trust. Consent for share transfer prevents unwanted persons from entering.

Correct answer: A. Ratio in written deed

The written deed is safer evidence. Oral changes should be recorded only after clear consent and amendment.

Correct answer: C. Interest on capital debit and interest on drawings credit

Interest on capital is allowed to partners so it is debited. Interest on drawings is received by the firm so it is credited.

Correct answer: B. Only for the service period after joining

The governing concept is time apportionment of a recurring remuneration fixed by the partnership agreement. A monthly salary is earned for the period during which the partner actually serves the firm, not automatically for the entire accounting year. The calculation is: monthly salary rate multiplied by the number of eligible months, or by the relevant fraction of a month where the agreement or accounting policy requires it. For example, if the monthly salary is 10,000 and the partner serves for six eligible months, the amount is 10,000 × 6 = 60,000. Therefore option B is correct. A full twelve-month amount would overstate the entitlement, zero ignores the service actually rendered, and capital ratio is unrelated to a time-based salary.

Correct answer: A. Six percent per annum

Amount due to a retiring partner generally carries six percent per annum when no rate is stated. Treat it like a liability.

Correct answer: A. Dissolution and continuity clause

This clause states whether the firm continues or dissolves on a special event. It clarifies continuity of the firm.

Correct answer: A. To control capital and cash

A drawings limit protects the working capital of the firm. It prevents uncontrolled reduction in capital accounts.

Correct answer: A. Other partners in profit sharing ratio

The deficiency is generally borne by other partners in their profit ratio when no special payer is stated. If the payer is named follow that clause.

Correct answer: B. The actual higher share

The governing concept is the meaning of a minimum profit guarantee in a partnership agreement. The word “minimum” establishes a floor, not a ceiling. The partner is protected from receiving less than the guaranteed amount, but the guarantee does not replace the partner’s normal entitlement when the actual share calculated under the agreed ratio is higher. For example, if the guarantee is 50,000 and the actual profit share is 65,000, the partner receives 65,000, not 50,000 plus 65,000. Hence option B is correct. Option A would wrongly treat the guarantee as a maximum, option C would duplicate the same entitlement, and option D ignores both the actual share and the contractual protection.

Correct answer: A. Terms of the partnership deed are binding on the partners

A partnership deed is a mutual agreement among partners. When the deed specifies different rates for interest on capital and on drawings, those rates are binding on the partners as per their agreement. Option B is incorrect because there is no general law mandating identical interest rates for all partnerships; rates are set by the deed or by agreement. Option C is wrong because interest on drawings can be charged if the deed provides for it. Option D is incorrect since bank or market rates are unrelated — the deed may prescribe its own rates. Exam tip: If a question explicitly mentions the partnership deed, treat the deed’s terms as binding unless stated otherwise.

Correct answer: A. The firm should reimburse the partner for such authorized expenses

An expense incurred for authorized firm business is a firm expense and the firm must reimburse the partner. The partner acts as agent on behalf of the firm, so payment made for firm purposes creates a firm liability. Option B is wrong because personal bearing applies only when the expense is not for firm business. Option C is incorrect — drawings are personal withdrawals, not reimbursements for authorized firm expenses. Option D is wrong because goodwill is an intangible capital asset, not an expense. Exam tip: verify the expense was authorized and supported by vouchers/approval before treating it as firm reimbursement.

Correct answer: A. Clarity in access and inspection of accounts

Fixing place and language helps partners inspect accounts easily. It reduces inspection disputes.

Correct answer: A. Value of personal benefit or use recoverable from partner

Personal use of firm property is a benefit to the partner. Its value may be debited to that partners account.

Correct answer: A. It will not be allowed

Normally interest on capital is an appropriation of profit. It is not allowed in loss unless the deed makes it a charge.

Correct answer: C. Profits are shared equally

In absence of a deed profits are shared equally. Salary interest on capital and interest on drawings need an express agreement.

Correct answer: A. Whether interest is appropriation or charge

First decide whether interest is an appropriation or a charge. Normally it is an appropriation and is limited to available profit.

Correct answer: A. Adjust both in Profit and Loss Appropriation Account

Partner salary and commission are appropriations of profit. They are shown in the Profit and Loss Appropriation Account before distributing remaining profit.