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If the deed says B cannot take a loan from the firm without permission, what type of provision is this?

Answer and explanation

Correct answer: Internal financial discipline

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.

Related tags

Partnership DeedFinancial DisciplinePartner LoanInternal ControlPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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