Partnership Deed

Correct answer: B. Salary may be treated as expense and increase loss

When salary is a charge, it is considered before profit appropriation. Therefore it may be accounted for even in loss.

Correct answer: C. In goodwill adjustment on admission of a new partner

Old partners sacrifice profit share for the new partner. Goodwill is distributed on the basis of that sacrifice.

Correct answer: D. Partner's capital account

The equal capital condition is fulfilled by adjusting capital accounts. Excess capital may be withdrawn or deficient capital may be introduced.

Correct answer: A. Partners' right to information about firm accounts

Partners are owners of the firm, so they should know the accounts. The deed makes this right clear.

Correct answer: C. Both are separate information and used differently

Capital shows investment and profit share shows the right in future profit. Mixing both is a common mistake.

Correct answer: B. It will be longer

When drawings are made at the beginning of each month, the money remains withdrawn for longer. So the interest period is taken longer.

Correct answer: C. To clarify business scope and lawful activities

The objective shows the business for which the firm is formed. It also clarifies the limit of partners' authority.

Correct answer: D. Drawings of the concerned partner

Payment of a personal liability is not a business expense of the firm. It is recorded in the partner's drawings or current account.

Correct answer: A. 5:3

Loss will be shared in the profit-loss ratio stated in the deed. Capital ratio is used for a different purpose.

Correct answer: A. They clarify both commencement and ending

Duration shows how long the firm is for and dissolution terms show how it may end. Both reduce disputes.

Correct answer: A. The commission base will be decided by deed wording

Commission may be on profit, sales or another specific base. In exams read the deed wording carefully.

Correct answer: A. Doubt among partners about reliability of accounts

An auditor-appointment clause ensures independent, regular scrutiny of the books. Such independent audit detects errors, irregular entries or fraud, increasing trust among partners and reducing disputes about the reliability of accounts. Option B is a plausible distractor but relates to operational packing of goods, not to accounting transparency. Exam tip: when the deed mentions 'auditor', 'audit' or 'independent inspection', select the option referring to account reliability, transparency or dispute reduction.

Correct answer: B. In current account

Under fixed capital method, the capital account does not change. Salary, interest and drawings are shown in current account.

Correct answer: A. Duty of loyalty and good faith towards the firm

Partners owe a duty of loyalty (a fiduciary duty) to the firm; carrying on a competing business without permission places the partner’s interests in conflict with the firm and therefore breaches that duty. Answer B (confidentiality) could also be implicated if firm secrets were misused, but the primary breach is loyalty. Options C (profit-sharing) and D (due care/skill) describe different obligations and do not directly cover unauthorised competition. Exam tip: remember “no competition without consent = breach of loyalty/fiduciary duty.”

Correct answer: B. Operating authority and internal control

Cheque-signing authority concerns who may approve and execute payments and so is part of operating authority and internal control. Specifying it in the deed prevents unauthorised payments, allocates responsibility, and establishes banking controls. Choice C (stock valuation) relates to inventory accounting, not payment authorisation; A and D are not about financial controls. Exam tip: look for words like “signing”, “authority” or “payments” — these point to internal control/operating authority.

Correct answer: C. On admission or retirement of a partner

Goodwill valuation may be needed when partners change. A method in the deed makes the calculation clear.

Correct answer: A. Control over financial authority

Direct answer: Option A, control over financial authority. Borrowing creates a financial obligation and may expose the firm to repayment and interest risk. A deed can therefore require consent of all partners before a loan is taken. Step by step: a loan is proposed; the consent condition is checked; without unanimous consent the borrowing is not authorised under the agreement; with consent, it may proceed subject to the deed. Option A is correct because it limits the power to create financial liabilities. Option B is wrong because borrowing permission does not change the profit-sharing ratio. Option C is wrong because the clause concerns loans, not wages. Option D is wrong because a sales return is a transaction involving returned goods, not borrowing authority. This is a protective internal-control clause. Memory cue: consent before loan means control of financial power.

Correct answer: A. The new partner's liability is limited

The deed can clarify admission terms for a new partner. Consent about old liabilities is important.

Correct answer: A. Salary will be removed

A partner’s salary is an appropriation of profit, not an ordinary business expense, and it can be allowed only when the partnership deed authorises it. If the deed contains no salary clause, the partner has no contractual entitlement to that salary. Recording it in the Profit and Loss Appropriation Account is therefore an error and must be corrected by removing or reversing the salary entry.

Thus option A is correct. The amount should not be doubled, added to sales, or deposited into the bank as a correction. Reversing the appropriation restores the profit available for distribution among the partners. This treatment follows the rule that, when the deed is silent, a partner is generally not entitled to remuneration for taking part in the firm’s business. Any valid correction must reflect the actual agreement rather than create a new benefit.

Correct answer: B. In profit and loss appropriation account

Direct answer: Option B, the profit and loss appropriation account. A partner’s salary and commission under the deed are generally appropriations of profit, not ordinary business operating expenses. The profit and loss account first determines the firm’s net profit. Then the appropriation account shows how that profit is distributed or applied: partner salary, commission, interest on capital and the remaining profit share may appear there. Option B is correct. Option A is wrong because the top of the cash book is not the proper classification for these profit appropriations; cash payment may affect cash, but the entitlement is recorded through the appropriation process. Option C is wrong because purchases account records goods bought for resale or production, not partner remuneration. Option D is wrong because capital reserve is a separate reserve concept and is not the normal place for partner salary or commission. If the firm has a loss, treatment can depend on the agreement, but the stated deed-based partner remuneration is ordinarily shown in appropriation. Exam cue: partner salary or commission usually means appropriation account.

Correct answer: C. Amount and time period

The correct answer is option C: the calculation depends on the amount withdrawn and the time for which that amount remained withdrawn. Interest on drawings is compensation charged to a partner because partnership money was taken out for personal use. The basic calculation is Interest = Amount × Rate × Time, with time expressed as a fraction of a year. At 12%, a withdrawal of Rs 10,000 for half a year would give Rs 10,000 × 12/100 × 1/2 = Rs 600. If money is withdrawn earlier, interest is generally higher because it is used for a longer period; if withdrawn later, interest is lower. Option A is wrong because profit ratio is used for sharing profits, not for measuring interest on a particular withdrawal. Option B is wrong because capital ratio does not determine the charge on drawings. Option D is wrong because bank balance alone does not tell us the partner's withdrawal amount and duration. Always read the dates carefully.

Correct answer: A. A profit appropriation condition as per deed

If donation is stated as an appropriation of profit in the deed, it is adjusted first. Read the wording carefully.

Correct answer: A. Method of profit settlement on death

The deed clause specifies how to compute the deceased partner’s share of profits — namely, using last year’s profit — which is exactly a method for settlement on death. Option B (method of valuing a partner's share) usually refers to valuing capital or goodwill and does not specifically prescribe how profit up to death is to be calculated. Option C is about normal profit distribution in an ongoing partnership, and D concerns settlement of liabilities, not profit share on death. Exam tip: spot keywords like “on death” and “last year’s profit” to identify that this is a death-settlement provision.

Correct answer: B. Interest on capital benefits partner and interest on drawings benefits firm

Interest on capital is given to the partner, while interest on drawings is charged from the partner. Remember this basic difference.

Correct answer: A. When the partner spent for the firm

Direct answer: Option A, when the partner spent money for the firm. Reimbursement means repayment of money that a person has properly paid on behalf of another person or organisation. Here, a partner may pay a firm expense personally, such as an authorised business purchase or official travel, and the firm can repay that amount according to the deed and supporting evidence. Reasoning: check that the expense was for firm business; verify the amount and proof; exclude any personal part; record the firm’s liability or repayment. Option A is correct. Option B is wrong because private clothes are a personal expense unless an unusual, clearly authorised business rule applies; they are not normally reimbursed. Option C is wrong because lack of profit does not decide whether a genuine firm expense was incurred, although payment timing may be affected. Option D is wrong because losing a bank passbook is not itself the stated basis for partner reimbursement. Memory cue: reimbursable means spent for the firm, not spent for oneself.