Partnership Deed

The deed contains rules related to the partnership, not private customer details. In exams check relevance to the firm.

Mentioning the nature of business clarifies the scope of partners' activities. It helps prevent disputes.

Interest is charged on thirty thousand for full year and on twenty thousand for six months. Calculate interest according to time.

The governing concept is time-based interest on drawings. The formula is: Interest on drawings = Drawings × Rate × Time. Since A withdrew ₹10,000 at the beginning of the accounting year, the amount remained outside the firm for the complete year, so time equals 1 year. The calculation is ₹10,000 × 8/100 × 1 = ₹800. Therefore option A is correct. ₹400 would represent six months at the same annual rate, not a beginning-of-year withdrawal. ₹80 results from misreading 8% as 0.8% or applying an incorrect base. Zero is impossible here because the deed expressly charges interest and the withdrawal occurred for the full accounting period.

In partnership, both profit and loss are shared according to rules. The profit ratio often becomes the loss ratio too.

When no separate loss ratio is given, the profit ratio is treated as the loss ratio. First read any special provision in exams.

A bank‑operation clause specifies who may operate the firm's bank account — who can sign cheques/drafts, how many signatures are required, procedure for deposits/withdrawals, and how the account is opened or closed. This prevents misuse and disputes over authority. Option C (borrowing/overdraft authority) is related but usually dealt with in a separate clause about borrowing powers, so it is not the primary purpose of the bank‑operation clause. Exam tip: look for terms like 'signatory', 'mode of operation' or 'joint/individual signing' to identify this clause in a deed.

The right to inspect books allows partners to view transactions, expenses and profit/loss entries directly. This increases accounting transparency and helps detect errors or fraud early, thereby strengthening partner oversight and trust. Option B may seem related, but inspection provides information and monitoring; the ability to make quicker operational decisions depends on management authority and procedures, not solely on inspection rights. Options C and D are incorrect because inspection rights do not automatically change tax liability or eliminate personal liabilities; those depend on law and the partnership's legal structure. Exam tip: Treat deed rights to inspect as information/control mechanisms — they improve transparency, not tax status or legal liability.

Admission of a new partner may change profit ratio and capital. Therefore, writing conditions in the deed is useful.

On retirement, the retiring partner's capital account, share in profits, settlement of goodwill and any amount due must be settled. Recording the retirement procedure in the deed specifies how these settlements will be made and reduces disputes. Options B, C and D concern other matters: C relates to admission of a new partner, B could be a separate clause but is not the primary purpose of a retirement clause, and D is unrelated. Exam tip: look for keywords such as 'settlement', 'capital', 'goodwill' or 'profit share' — they point to retirement provisions.

The amount due to a deceased partner is payable to legal heirs. Therefore, settlement rules in the deed are important.

The commission has already been paid and the remaining profit is shared in the ratio 3:2. A's portion of the remaining = three parts out of total five parts, i.e. \(\frac{3}{3+2}\) × ₹45,000 = \(\frac{3}{5}\) × ₹45,000 = ₹27,000. Clarification: ₹45,000 is after commission, so we do not add the commission to this calculation unless the question asks for A's total receipts. The closest wrong option (₹22,500) would be obtained by taking half of the remainder, which is incorrect for a 3:2 split. Exam tip: to find the original profit P when remainder and commission% are given, use remainder = (1 − commission%)×P.

Arbitration can help settle disputes outside court. It is a practical clause in a partnership deed.

The partnership deed is the written agreement specifying capital contribution, profit‑sharing ratios, rights, duties and other terms. In disputes among partners about rights or profit shares it serves as the primary and most authoritative evidence because it records the parties’ agreed terms. Options B, C and D relate to transactional or physical proofs and are not as decisive for proving internal partner rights. Exam tip: whenever the question mentions disputes among partners or internal rights, choose the partnership deed as the best evidence.

Under fluctuating capital method, the capital account changes. Drawings, interest, and profit may be adjusted in it.

Interest on capital is allowed according to the deed and available profit. Read the given condition first in the question.

Partner's salary is deducted from net profit before distribution because it is an appropriation. Calculation: ₹40,000 − ₹12,000 = ₹28,000. Thus the distributable profit is ₹28,000. Common mistakes: forgetting to deduct the salary (option B) or incorrectly adding it (option C). Exam tip: always subtract agreed partner salaries and other appropriations first, then divide the remaining profit in the profit-sharing ratio.

This provision reflects the 'separate accounting of firm and partners' (separate entity) concept. According to this principle, the firm's accounts must be kept distinct from partners' personal transactions so that the firm's true profit and financial position are ascertainable. Charging personal expenses to the firm's books would distort profit and capital balances. Closest distractor — 'Partner's loan' — differs because a partner loan is a specific transaction between a partner and the firm that should be recorded; it is not the same as improperly charging a partner's personal living expenses to the firm. Exam tip: when the question mentions 'personal' or 'private' expenses not to be charged to the firm, choose the separate entity / separate accounting principle.

A partner’s authority to represent the firm and enter into contracts is part of the rights and duties arrangement. The partnership deed can specify which partner may negotiate, sign or approve contracts, the limits of that authority, and whether consent from other partners is required. This reduces unauthorized commitments and clarifies responsibility when the firm deals with outsiders. Therefore, option A is correct. The colour of goods, customer discounts and warehouse rent may be operational matters, but none of those provisions identifies a partner’s legal or managerial authority to bind the firm through a contract.

Minimum profit guarantee may protect a partner's profit share. Its adjustment is made in profit distribution.

Interest on capital is allowed to partner and interest on drawings is charged from partner. Remember their opposite directions in exams.

The duration clause tells how long the partnership will continue. It is important in fixed period partnership.

Names and addresses in a partnership deed provide the basic legal identity of the persons forming the firm. They make it clear who the partners are and where they can be contacted. This information helps distinguish one partner from another and reduces the possibility of confusion about the parties to the agreement. It also supports proper maintenance of the firm’s records and accountability among the partners.

The deed is an agreement, so the persons entering into that agreement must be clearly identified. Therefore, mentioning names and addresses serves the purpose of identifying the partners clearly, which is option A. It does not automatically make profits equal, determine the market price of goods, or remove any liability. Profit sharing and other rights are decided separately by the terms of the deed.

Goodwill valuation is important when the partnership changes. The method in the deed reduces disputes.

A commission described as a percentage of sales is calculated on the firm’s sales amount. If sales are S, the commission is 5% of S, or 0.05S, subject to the partnership deed. It is not calculated on capital, drawings, or loans. Therefore, option A correctly identifies the basis specified by the deed.