Partnership Deed

A personal expense belongs to the partner, not to the business. When the firm pays that expense on the partner’s behalf, the payment is treated as a withdrawal of the partner’s resources from the firm. The concerned partner’s Drawings Account is therefore debited, and Cash or Bank is credited for the actual payment. Option A is correct. The payment is not a sales transaction, so Sales Account is irrelevant; it does not create a transfer to General Reserve; and it does not represent a loan unless the facts specifically establish a separate lending arrangement. Recording it as drawings prevents the firm’s business expenses and the partner’s private consumption from being mixed.

Goodwill represents the value of a firm’s reputation and its ability to earn above-normal benefits. Its valuation becomes particularly important when a partner is admitted, retires, or dies, because the partners’ rights and compensation may change. If the deed states the valuation method in advance—such as an agreed method based on average profit, super profit, or capitalisation—the partners have a common basis for calculation. Hence, option A is correct: a predetermined method reduces uncertainty and disputes. It does not increase daily cash sales, cancel a bank loan, or remove interest on drawings, since those matters are governed by entirely different transactions or clauses.

The governing concept is that interest on drawings accrues only for the period during which the partner’s money remains withdrawn from the firm. The period is measured from the date of withdrawal to the end of the accounting year. If the withdrawal occurs exactly at the year-end, there is no meaningful interval between withdrawal and closing date, so the interest period is zero and the interest is normally nil. A full year would apply to a withdrawal at the beginning of the year. Six months would usually apply to a middle-of-year withdrawal, while three months would require a withdrawal approximately three months before year-end. Therefore option A is correct, subject to any specific convention stated in the deed.

The governing concept is internal control over the use of partnership funds. A clause requiring B to obtain permission before taking a loan from the firm regulates access to firm money and prevents one partner from using business resources unilaterally. It protects liquidity, supports accountability and reduces the possibility of disputes about unauthorized withdrawals or advances. Consequently, it is best described as a provision for internal financial discipline. A profit-sharing ratio determines how profit is divided and does not control borrowing. Inventory valuation concerns the measurement of stock, while external tax assessment is performed under tax law by the authorities. Those subjects do not explain this consent requirement. Therefore option A is correct.

The governing concept is that partners’ remuneration must be accounted for according to the exact terms of the partnership deed. If both salary and commission are mentioned and profit is low, the first step is to examine whether the deed specifies the order of payment, the basis of commission, a maximum limit, or a condition such as availability of adequate profit. For example, commission may be calculated before or after a particular charge, and salary may be payable before commission. These contractual instructions determine the correct treatment and any deficiency. A bank branch, customer list, or quantity of goods does not decide the partners’ entitlement. Hence option A is correct.

The governing concept is internal authority and control under a partnership deed or banking mandate. A joint-signature condition means that both specified partners must authorise a withdrawal before the firm’s funds are used. If A withdraws money alone, the transaction can breach the agreed deed condition and may be treated as an unauthorised withdrawal, depending on the bank mandate and applicable law. It may also create an internal liability or dispute between the partners. Such an act cannot automatically increase profit, cancel interest on a loan, or equalise capital balances. Those alternatives have no logical connection with the signing requirement. Therefore option A is correct.

The governing concept is freedom of agreement in determining partners’ mutual rights and duties, subject to applicable partnership law. If the deed clearly and validly states that A will not share losses, A may be exempted according to that clause. The loss would then be allocated among the other partners in the manner stated in the deed or, where necessary, under the applicable default rule. An equal loss cannot automatically be imposed on A when a valid contrary term exists. The whole loss also cannot be charged to A merely because A is a partner, and a loss is never converted into sales. Therefore option A is the correct treatment.

The governing concept is that admission of a partner changes the constitution of the partnership. A new partner does not merely participate in one sale or purchase; the admission affects the number of partners, future profit and loss sharing, capital contribution, management powers, agency relationships, and mutual obligations. It is therefore a structural or constitutive decision. Under the condition stated in the deed, such a decision requires unanimity, meaning every existing partner must consent. Cash sales and minor office expenses are routine commercial matters and do not change the legal or economic structure of the firm. Therefore option B, Structural decision, is correct.

The governing concept is the distinction between a charge against profit and an appropriation of profit. Interest on a partner’s loan is a financing cost payable because the partner has acted as a lender. It is therefore treated as an expense or charge and is considered before determining the profit available for distribution. Interest on capital is normally an appropriation of the profit after it has been calculated, even though the deed may specify its payment. Interest on drawings is income for the firm, while dividend belongs to company accounting and is not a normal partnership item. Consequently, interest on loan appears first as an expense, so option A is correct.

The governing concept is that a partner’s capital deficiency is a personal account-related matter, not an expense to be shared by outsiders or unrelated parties. If the partnership deed specifically states that interest is chargeable on a deficiency in a particular partner’s capital, the amount is debited to that partner’s Capital Account or Current Account, according to the accounting arrangement. Thus, the partner whose capital is deficient bears the interest. Customers, the bank and the government have no accounting responsibility for this internal adjustment. Therefore, option A is correct. The deed is important because, in the absence of such a specific provision, this charge cannot ordinarily be imposed merely by assumption.

A partnership deed is the governing agreement for distributing profit when it contains a specific instruction. If the deed directs that a stated amount or proportion be transferred to a reserve before distribution, that instruction must be carried out first. The reserve is created by setting aside the prescribed amount from the available profit; only the balance is then considered for appropriation among the partners according to their agreement. The step is not a deduction of an existing reserve, and there is no basis for equal sharing unless the deed says so. Drawings are withdrawals of cash or goods, not profit. Therefore, option A correctly identifies the first step.

The governing principle is that partners’ mutual rights and liabilities are determined by the partnership deed; where the deed is silent, the applicable statutory default rules apply. Under the standard partnership-accounting rule, interest on drawings is not charged when the deed contains no provision for it. The firm cannot impose such a charge merely because a partner has made drawings. Option B is wrong because charging is not automatic. Option C invents a fixed rate that does not apply in the absence of an agreed term, and option D confuses the basis of charging with the profit-sharing ratio. Therefore, the correct treatment is to make no charge for interest on drawings, making option A correct.

The governing concept is the default rule used when the partnership deed is silent about the profit-sharing ratio. In the absence of an agreed ratio, partners share the residual profit and loss equally, subject to the applicable partnership law. Adjustments such as partner salary, commission, interest on capital and interest on drawings are first recorded according to the deed or statutory provisions. The profit left after those adjustments is then divided equally. Capital contributions, drawings and salaries do not automatically create the residual sharing ratio. Therefore option A is correct. Options B, C and D would apply only if the partners expressly agreed to use those bases; they are not the default rule.