Partnership Deed

Correct answer: A. Through new partners account

Goodwill not brought in cash can be adjusted through the new partners capital or current account. Old partners are credited in sacrificing ratio.

Correct answer: A. Old partners in old ratio

Reserves existing before admission belong to old partners. The new partner shares future profits.

Correct answer: A. To estimate profit up to date of death more fairly

Sales basis links profit estimate to actual activity rather than only time. It makes the deceased partners share fairer.

Correct answer: A. Bring eight thousand rupees

To make capitals equal B's capital must be increased to 70,000. B currently has 62,000 so deficiency = 70,000 − 62,000 = 8,000. Therefore B must bring in ₹8,000. The closest distractor (withdrawing ₹8,000) is wrong because that would further reduce B's capital rather than equalize it. Exam tip: compute the difference between capitals — if one is deficient it must bring in the difference; if in excess it withdraws the excess.

Correct answer: A. Sixty thousand rupees

In the ratio 5 : 3, A corresponds to 5 parts. If 5 parts = ₹100,000, then one part = ₹100,000 ÷ 5 = ₹20,000. Hence B (3 parts) = 3 × ₹20,000 = ₹60,000. The closest distractor (₹40,000) would result from incorrectly taking 2 parts instead of 3; other options do not match the given ratio. Exam tip: Convert the ratio into the value of one part first, then multiply by the required number of parts.

Correct answer: A. No effect

When opening capital is the base profit added later does not become the interest base. The deed base prevails.

Correct answer: A. Average capital will decrease

Average capital means that the capital used during different periods of the year is considered, rather than looking only at the opening or closing figure. A withdrawal reduces the amount of capital available after the date of withdrawal. If the withdrawal occurs in the middle of the year, the lower capital remains in use for the remaining months. Consequently, the time-weighted average capital becomes lower than it would have been without the withdrawal.

Thus, the correct choice is A: average capital will decrease. The exact decrease depends on the amount withdrawn and the time for which it remains withdrawn. For example, a withdrawal of ₹20,000 halfway through the year affects the capital for about half the year, so its time-weighted effect is considered in calculating average capital. It is not correct to use closing capital automatically, because the deed specifically requires average capital. The supplied answer is consistent.

Correct answer: A. In proportion to six months

If service period is shorter salary is calculated on time basis unless the deed states otherwise. This is important in admission and retirement problems.

Correct answer: A. He may be more like an employee than a real partner

Sharing profit is an important element of partnership. A person receiving only salary may not be a real partner.

Correct answer: A. C will not bear losses

The partnership deed governs distribution of profits and losses. When the deed expressly limits loss-bearing to A and B, that specific clause prevails and C is excluded from bearing losses. Closest wrong answers: option D (loss in capital ratio) is incorrect because deed provisions override default rules; option B (equal sharing) is wrong because no clause in the deed requires C to share equally. Exam tip: always read the deed first—specific loss-sharing clauses override general/default ratios (like profit or capital ratios).

Correct answer: A. Firms income or rent recovery account

When a partner uses firm property personally, the firm is entitled to recover the agreed market rent. That recovery represents income or compensation for the firm because the property could otherwise have been used for business or rented to another person. Accordingly, the concerned partner’s account is debited for the amount payable, and the firm’s income or rent-recovery account is credited.

Therefore option A is correct. The amount is not partner salary, goodwill, or purchases: none of those accounts represents rent earned by the firm. The credit records the firm’s claim or income, while the debit records the partner’s personal use. The exact account title may vary according to the accounting system, so “firm’s income” or “rent recovery” is appropriate. The important principle is that private use creates an amount recoverable by the firm.

Correct answer: A. Duty of loyalty and good faith

A partner owes loyalty to the firm. Taking private benefit from a firm opportunity may violate the deed and duty.

Correct answer: A. The firm

Profit earned from a competing business may have to be given to the firm. This is linked to the partners duty of loyalty.

Correct answer: A. Risk of error and bias in accounting

An external accountant provides independent verification, improving accuracy and neutrality of the accounts. This specifically reduces risk of accounting errors, bias or concealed misstatements. It does not remove inherent business or market risks, and although it may reveal issues that lead to legal consequences, it does not directly eliminate legal liability risk or reputational/customer loss. Exam tip: when you see 'external' or 'independent' auditor in the deed, choose the option related to accuracy/ bias/error reduction.

Correct answer: A. The rate stated in the deed will apply

Under partnership practice, the rate specified in the deed governs interest on partner loans. The six percent rule is a default used only when no rate is agreed in the deed or contract. Therefore, if the deed expressly gives a higher rate, that deed rate applies. Option B is a common misconception — 6% applies only when the deed is silent. Exam tip: mark “6%” as the default only when the question states no agreed rate or deed is silent on interest.

Correct answer: A. Six percent per annum will be allowed

Interest on partner loan is a charge against profit. If the deed is silent six percent interest is allowed even in loss.

Correct answer: A. Firm expense

Use of a personal vehicle for firm business can create a rent like expense. A clear deed clause makes the payment valid.

Correct answer: A. Account of the partner at fault

Normally, a business loss is borne by the firm and is ultimately shared by all partners according to the agreed profit-and-loss ratio. However, partners may include a special condition in the deed for a loss caused by the fault or negligence of one particular partner. Such a clause makes that partner responsible for the stated loss instead of passing it to the other partners. The accounting entry must therefore reflect the person from whom the amount is recoverable.

Here the loss is ₹15,000 and the deed specifically says that the partner at fault will bear it. The correct choice is A: debit the account of the partner at fault. Debiting that partner records the amount due from or charged to that person. It would be inappropriate to debit all partners equally because the special clause overrides ordinary sharing for this particular loss. Goodwill, bank, and stock accounts do not represent the responsible partner’s obligation.

Correct answer: A. Because the deed requires proof

The proof condition in the deed is part of accounting control. Accepting a claim without bill may create disputes.

Correct answer: A. Right of access and inspection of accounts

Direct answer: Option A is correct. A partner has the right to access and inspect the firm’s books and records, subject to the partnership agreement and proper business practice. Keeping books online does not remove this right. Requiring every partner to receive the password is a practical way to ensure that each can view the accounts, verify entries, and monitor the firm’s affairs. Option A works because it directly concerns access to and inspection of accounting records. Option B is wrong because selling goodwill is a separate business decision and is not created by giving book passwords. Option C is wrong because access to books does not give a partner the power to stop drawings automatically. Option D is wrong because inspection rights do not allow a partner to waive or cancel loans. The underlying principle is transparency among partners: those who share the business should be able to examine its financial information. The clause supports information and oversight, not ownership of goodwill or unilateral control. Exam cue: books, records, passwords, and inspection point to the right of access to accounts.

Correct answer: A. Thirty thousand rupees

Convert the percentage to decimal: 15% = 0.15. Multiply by total profit: \(2,00,000 \times 0.15 = 30,000\). Thus ₹30,000 is appropriated to the expansion fund. The closest distractor (₹20,000) is wrong because it corresponds to 10% of the profit (or a miscalculation of the percentage). Exam tip: always convert % to decimal and multiply to avoid mistakes (e.g., 15% = 15/100 = 0.15).

Correct answer: A. Because reserve is deducted first and commission base may change

The order in the deed changes the calculation base. If reserve is deducted first profit left for commission becomes lower.

Correct answer: A. Special clause for profit sharing after appropriation

Sometimes the deed gives a separate ratio for remaining profit after appropriations. In such questions identify both order and ratio separately.

Correct answer: A. Because sharing profit is an important element of partnership

Receiving only interest on capital may indicate a lender like position. Profit relation is important for real partnership.

Correct answer: A. Profit share up to date of death

A deceased partner gets rights earned up to date of death. Salary for future service is generally not payable.