Partnership Deed

Correct answer: A. It will not be allowed as appropriation when there is no profit

Interest on capital is generally an appropriation of profit. It is not allowed when there is no profit unless the deed treats it as a charge.

Correct answer: A. Equally

When the deed is silent, partners share profits equally by default — each partner gets an equal share. Sharing in proportion to capital applies only if the deed or partnership agreement expressly provides for it or when partners have mutually agreed. The closest distractor (capital ratio) is incorrect here because capital-based sharing is valid only when specified in the deed. Exam tip: If the partnership deed is silent about profit ratio, answer ‘‘Equally’’; consider capital/time/salary ratios only when explicitly stated in the deed or agreement.

Correct answer: A. It gives a basis for charging interest on amounts withdrawn by partners

Direct answer: Option A, it provides the basis for charging interest on amounts withdrawn by partners. Drawings are amounts taken by a partner from the firm for personal use. Interest on drawings compensates the firm for the use of its money and is charged only when the partnership agreement permits it. Reasoning: find the amount withdrawn; find the relevant time; apply the stated rate and method; record the resulting interest according to partnership accounting rules. Option A is correct. Option B is wrong because interest on drawings does not make capital permanent. Option C is wrong because it does not automatically turn profit into loss; it is an appropriation or adjustment based on the agreement. Option D is wrong because a partner deed does not normally fix the bank’s loan rate. If the deed is silent, the standard school rule is generally that no interest on drawings is charged. Memory cue: drawings plus deed permission can mean interest; no permission generally means no charge.

Correct answer: A. Six percent per annum

Under Section 13(d) of the Indian Partnership Act, 1932, when a partner gives a loan or advance to the firm beyond the partner’s agreed capital contribution and the deed does not specify a different rate, interest is payable at 6% per annum. Therefore, option A is correct. This statutory rule concerns a partner’s loan or advance, not ordinary interest on capital. Zero percent is incorrect because the Act supplies a default rate when the agreement is silent. Twelve percent has no basis in the stated rule, and a capital ratio cannot determine the interest rate on a separate loan. The distinction between capital and loan is important: capital represents the agreed investment, while a loan is an advance giving rise to the statutory interest entitlement.

Correct answer: A. No salary will be allowed

The direct answer is option A: no salary will be allowed. In partnership accounting, a partner receives salary only when the partnership deed clearly provides for it, or when all partners agree to it. Salary is not an automatic reward for being a partner or for doing work. First read the deed. Here it is silent, so there is no agreed salary. Therefore, no salary is credited to any partner. The profit is distributed according to the applicable profit-sharing rule after considering only those appropriations that are permitted. Option A is correct because the absence of a deed provision means that partner salary cannot be claimed. Option B is wrong because equal salary cannot be assumed merely because there are several partners. Option C is wrong because an active partner also has no automatic right to salary; being active is not enough. Option D is wrong because salary is not calculated according to the capital ratio. Capital ratio may be relevant in some other calculation only when the deed says so, but it does not create a salary right. A useful exam cue is: partner salary requires authority from the deed or consent; silence means no salary.

Correct answer: A. To resolve future disagreements by a fixed rule

A dispute settlement clause gives partners a clear process. Link it with the practical usefulness of the deed.

Correct answer: A. Admission clause

The admission clause states terms for a new partner. It may include capital and profit ratio also.

Correct answer: A. To decide payment and rights of the retiring partner

A retirement clause clarifies settlement when a partner leaves. It reduces disputes about goodwill and capital payment.

Correct answer: A. Profit and Loss Appropriation Account

A commission allowed to a partner under the partnership agreement is normally treated as an appropriation of profit, because it is a distribution or allocation of the firm’s profit to a partner after determining the operating result. It is therefore recorded through the Profit and Loss Appropriation Account. This account shows how the available profit is distributed among partners through items such as salary, commission, interest on capital, and the residual profit share. The Sales Account records revenue from goods sold, and the Purchases Account records the cost of goods acquired; neither is the proper account for partner commission. The beginning of the Cash Book is also unrelated. Hence, option A is correct.

Correct answer: A. Deed is the written form of the agreement

A partnership agreement is the set of terms between partners and may be oral or written. Its written form is called the partnership deed, which records capital contributions, profit-sharing, duties and other terms and serves as legal evidence. Option B is incorrect because a deed is not a bank letter. Option C is incorrect because an agreement can indeed be oral. Option D is incorrect because a deed is not merely a government form but a written contract between partners. Exam tip: remember that a deed is evidence of the agreed terms—while writing is not always mandatory, a written deed provides clear proof in disputes.

Correct answer: A. To clarify identity and business scope

Name and nature of business define the firm's identity. They also clarify the scope of partners' activities.

Correct answer: A. The accounting period must be decided separately

Accounting year details help timely preparation of accounts. If the deed is silent, partners can decide it separately.

Correct answer: A. To keep capital and current accounts separate

The governing concept is the distinction between fixed capital accounts and fluctuating current accounts. Under the fixed capital method, each partner’s capital account normally remains at the agreed amount unless additional permanent capital is introduced or permanent capital is withdrawn. Routine items such as the partner’s share of profit or loss, drawings, interest on capital, interest on drawings, salary and commission are recorded in a separate current account. The partnership deed should state this method so that every partner knows where each adjustment will be posted and how balances will be presented. Closing the Sales Account, removing a customer account or converting a loan into capital has no connection with this accounting arrangement. Therefore, option A is correct.

Correct answer: A. Rules about profit, drawings, interest and salary

In fluctuating capital method, all adjustments go to capital account. Hence appropriation terms of the deed are important.

Correct answer: A. Drawings of partners and the calculation of interest on drawings

A drawings limit in the deed directly controls how much partners can withdraw. Therefore it directly affects the recording of partners' drawings and the calculation of interest on those drawings — for example, excess withdrawals may attract interest or change the interest treatment. Options B, C and D may be indirectly affected but are not the primary accounting items changed by a drawings limit, so they are incorrect. Exam tip: When reading a partnership deed, flag clauses on 'drawings' and 'interest on drawings' — they determine current account entries and interest calculations in the books.

Correct answer: A. At admission, retirement or death

Goodwill represents the value of a firm’s reputation and expected future earning capacity. Its valuation becomes especially important when the constitution of the firm changes, such as when a new partner is admitted, an existing partner retires, or a partner dies. The deed can prescribe a method, such as the average-profit, super-profit or capitalisation method, so that the amount is determined consistently and disputes are reduced. Daily cash sales, bank reconciliation and purchase orders do not normally require a partnership goodwill valuation. Therefore option A is correct.

Correct answer: A. Interest will be allowed even if it increases loss

If the deed treats it as a charge, interest is treated like an expense. It can be allowed even in loss.

Correct answer: A. To know appropriation rights of partners

Salary, interest and profit sharing in appropriation account follow the deed. So the deed is the main basis.

Correct answer: A. It may be difficult to prove the terms

The governing concept is the evidentiary value of a written partnership deed. A partnership agreement may be oral, so the absence of a written document does not automatically prevent a valid partnership from existing. However, if the partners later disagree about the profit-sharing ratio, interest, drawings, duties, salary, commission or settlement of accounts, each person may remember the oral terms differently. Without a written record, proving the exact agreement becomes difficult and disputes become more likely. A written deed records the mutually accepted conditions and provides a reliable basis for accounting and settlement. It does not necessarily close the bank account or make the firm’s profits tax-free. Hence option A is correct.

Correct answer: A. To clarify who will sign or operate it

The bank operation clause clarifies payment control. It reduces disputes over unauthorized transactions.

Correct answer: A. Work division and accountability become clear

Specifying partners’ duties in the partnership deed clarifies who is responsible for particular managerial, financial or operational activities. This supports an orderly division of work, makes accountability easier to assess and helps prevent overlapping authority or disputes. It does not guarantee that goods will sell automatically, eliminate tax liability, or make the partners’ capital contributions equal. Capital equality would require a separate agreement or actual adjustment, not merely a statement of duties. The governing benefit is therefore better management control and clear responsibility. Thus option A is the only appropriate answer.

Correct answer: A. When the deed allows salary

Partner salary is not treated like ordinary employee salary. It is an appropriation of profit as per deed.

Correct answer: A. In the profit ratio

If no separate loss ratio exists, loss is generally shared in the profit ratio. Treat it as based on partners' agreement.

Correct answer: A. On retirement of a partner or dissolution of the firm

Capital repayment terms help in partner settlement. They are important in retirement and dissolution.

Correct answer: A. Partnership for a fixed term

When a fixed period is written, it is a partnership for a fixed term. New consent may be needed after the term ends.