Partnership Deed

The direct answer is option A: rupees four thousand. The commission is 2% of sales, and sales are ₹2,00,000. Convert the percentage into a fraction: 2% = 2/100. Now calculate: commission = 2/100 × 2,00,000 = ₹4,000. The base is sales, so we do not need the firm’s profit. Option A is correct because the calculation directly follows the deed. Option B, ₹2,000, would be 1% of ₹2,00,000, not 2%. Option C, ₹20,000, would represent 10% of sales, so it is too high. Option D, ₹40,000, would represent 20% of sales, also too high. A common mistake is to confuse a commission on sales with a commission on profit. Here the words “on sales” clearly identify the base. Another mistake is to forget that 2% means two parts out of one hundred. Memory cue: when commission is on sales, multiply sales by the stated percentage; do not search for profit.

The direct answer is option A: read the appropriations given in the deed. Profit should not be distributed by guesswork. First identify the deed’s rules about partner salary, commission, interest on capital, interest on drawings and any other permitted appropriation. Then calculate these items in the proper manner and distribute the remaining profit according to the agreed ratio. Option A is correct because reading the deed is the necessary first step. Option B is wrong because selling all assets is not required for ordinary profit distribution and may destroy the business. Option C is wrong because closing only the sales account does not reveal the complete profit or the partners’ rights. Accounts for expenses, income and appropriations must also be considered. Option D is wrong because customers do not decide how partners divide profit; that matter is governed by the deed or applicable law. A weak student should remember that the deed is the firm’s instruction book. Read it before making entries or dividing profit. Memory cue: deed first, appropriations next, distribution after that.

The deed records financial and administrative rules of partners. It is an internal guiding document of partnership.

If the deed treats capital ratio as profit ratio, that ratio applies. A clear deed term overrides the general rule.

The governing concept is the evidentiary importance of a partnership deed. An oral agreement may be legally relevant, but its terms are not recorded in a document that can be readily consulted or produced as proof. If the partners later disagree about the profit-sharing ratio, salary, interest on capital, drawings, authority, or other conditions, each person may remember the arrangement differently. This can cause disputes and make enforcement difficult. Therefore, option A is correct: proving the agreed terms becomes the main practical problem. Profit can still be earned, a bank account can normally be opened, and purchasing goods is not automatically illegal, so options B, C, and D are not valid consequences of an oral agreement.

The governing concept is the separation between a partner’s personal obligations and the liabilities of the partnership firm. A loan taken by a partner for personal purposes is ordinarily different from a borrowing undertaken by the firm for its business. A deed clause clarifying that the firm will not bear such personal liability helps define responsibility and prevents the firm’s funds or other partners from being treated as responsible without proper authority. Hence option A is correct because the clause limits or clarifies the liability attaching to the firm. It does not determine how profits are divided, give a sales discount, or specify where a warehouse is located. Those matters are unrelated to a personal-loan liability clause.

Unrestricted withdrawal of capital can reduce the firm's working capital and undermine ongoing operations. A restriction clause aims to keep sufficient capital in the business so liabilities can be met and planned investments or working capital requirements are not endangered. Option C (to stop payment of taxes) is incorrect because deed clauses cannot lawfully prevent tax payments; tax obligations are governed by law. Exam tip: Link the phrase “capital withdrawal” with “working capital/financial stability” in the question — that points to option A.

Interest on partner's loan is treated as an expense or charge for the firm. It may be payable even when there is no profit.

The governing concept is the distinction between a charge against profit and an appropriation of profit. Interest on a partner’s capital and salary allowed to a partner are normally appropriations when they are provided under the partnership agreement. After net profit is transferred to the Profit and Loss Appropriation Account, these amounts are debited there because they reduce the residual profit available for distribution among partners. Thus option A is correct. They are not credited as income, they are not recorded on both sides merely because two items are involved, and they do not disappear from the accounts. The exact treatment can depend on the agreement and applicable rules, but under the stated deed-based partnership context the debit-side treatment is the intended answer.

Interest on drawings is received by the firm from partners, so it is shown on the credit side. It increases distributable profit.

When the deed is silent, general rules of the Partnership Act apply. Remember this in silent deed questions.

The direct answer is option A: apply the clear term of the deed. Partnership rules usually work in two stages. First, check whether the partners have made a clear agreement in their deed. If they have, that agreed term governs the accounting relationship, subject to applicable law. Only when the deed is silent or incomplete do the default provisions of the Partnership Act fill the gap. Option A is correct because a clear contractual provision is considered before a default rule. Option B is wrong because the general Act rule is not automatically used when the deed has already settled the matter. Option C is wrong because a bank’s internal rules govern banking transactions, not the partners’ agreement about profit, salary or interest. Option D is wrong because customers have no authority to choose the partners’ accounting terms. The correct sequence is: read the deed, find a clear clause, apply it; if no clause exists, apply the statutory default. This principle prevents students from using a general rule when a special agreement is present. Memory cue: agreement first, default law when silent.

When the basis is clear in the deed, commission can be calculated correctly. Before or after profit adjustment is important in exams.

The closing date of accounting year clarifies the accounting period. It makes calculation of profit, interest, and drawings easier.

The deed clarifies the main rules of partnership. In exams study both its contents and rules for a silent deed.

This clause tells whether goodwill amount will be shared among partners or retained in the firm. In exams, read admission related deed terms carefully.

The governing concept is time-based allocation of a recurring monthly remuneration under the partnership deed. The partner is entitled from 1 January through 31 March, which covers January, February and March, or three complete months. The calculation is: monthly salary ₹8,000 × 3 months = ₹24,000. Therefore option A is correct. ₹96,000 represents twelve months and ignores the date of admission. ₹8,000 represents only one month, while ₹32,000 incorrectly treats the period as four months. The year-end date is included because remuneration is earned for the three months ending on 31 March.

The governing concept is the distinction between a business expense and a partner's private withdrawal. Rent for the partner's personal residence or other personal obligation does not help earn the firm's revenue and cannot be charged to the firm's Profit and Loss Account merely because the firm made the payment. Since the firm's cash was used for A's personal benefit, the amount is debited to A's drawings or current account, depending on the accounting system used. Thus option A is correct. It is not firm rent expense, because the benefit is personal; it is not goodwill or interest, because neither represents the nature of the payment.

The governing concept is the distinction between a charge against profit and an appropriation of profit. A payment described as payable irrespective of profit or loss is treated as an expense or charge that must be considered before the residual profit is distributed. It reduces the profit available for appropriation and may still be recognised even when the firm has a loss, subject to the exact terms of the deed and applicable rules. Therefore option A is correct. A normal appropriation is made only after profit has been determined; drawings are withdrawals of funds, and goodwill adjustment concerns business reputation rather than remuneration.

The governing concept is identifying the correct profit base before applying the commission percentage. The question explicitly states that B receives 10% of net profit before commission and that profit before commission is ₹90,000. Therefore the calculation is: Commission = 10/100 × ₹90,000 = ₹9,000. Option A is correct. The alternative formula ₹90,000 × 10/110, which gives approximately ₹8,182, is used when commission is calculated on profit after charging that commission; that is not the condition here. ₹10,000 uses an unsupported amount, while ₹90,000 is the entire profit rather than the commission. Thus only option A follows the stated deed.

The governing concept is classification according to the substance of the transaction. When the firm lends money to a partner, the firm has a receivable: the partner must repay the principal, and the agreed interest is also recoverable. The transaction is therefore recorded in a separate partner-loan or advance account, normally as an asset or debit balance in the firm's books. Option A is correct. It should not be included only in the capital account because loan and capital have different terms and repayment rights. Goodwill represents reputation, while the appropriation account deals with profit distribution rather than recording the principal loan.

The governing concept is the accounting difference between an expense charged before profit determination and an appropriation made after profit determination. The deed expressly calls the managing partner's bonus an expense before calculating profit. It must therefore be debited to the Profit and Loss Account while arriving at net profit, reducing the profit that will later be appropriated among partners. Option A is correct. The Appropriation Account is used after net profit has been determined for items such as profit distribution and partner appropriations. A capital account records the partner's capital movements, and goodwill records business reputation, so neither is appropriate for this bonus expense.

Under the standard provisions of partnership accounting, interest on drawings is charged only when the partnership agreement provides for it. If the deed is silent, no interest on drawings is charged, so option A is correct. The reason is that interest on drawings is not an automatic statutory adjustment in the absence of an agreed term. The six-percent rule applies to interest on a loan given by a partner to the firm when the deed is silent, not to drawings. A profit rate or capital rate has no general application to drawings. Therefore, the accounting treatment is to leave interest on drawings unrecorded unless the deed or a valid mutual agreement specifically authorises it.

A loan advanced by a partner is treated separately from the partner’s capital. Under the usual partnership rule, when the deed is silent, the partner is entitled to interest on the loan at six percent per annum. This entitlement is a charge against the firm and does not depend on the existence of profit; consequently, even when the firm has incurred a loss, the interest remains payable. Therefore, option A is correct. The loss does not cancel the contractual or statutory entitlement, and the amount is not distributed in the profit-sharing ratio. It is recorded as an expense or charge payable to the partner, rather than being treated merely as a capital credit.

Because the partner made the withdrawal at the beginning of the accounting year, the entire amount remained withdrawn for twelve months. Interest on drawings is calculated as principal × rate × time. Therefore, the calculation is Rs 12,000 × 15/100 × 12/12 = Rs 1,800. Option A is consequently correct. Rs 900 would represent six months’ interest at fifteen percent, which could apply to a middle-of-the-year withdrawal; Rs 1,500 does not follow the stated annual rate and period; and Rs 1,200 is the result of applying ten percent for a full year. The timing of the drawing is essential because it determines the period for which interest is charged.