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All questions of Unit 1: Introduction to Partnership Accounts for CA Foundation Exam

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Aryan and Gauri were partner in a firm sharing profits and losses in the ratio of 2:1. Their capital was R.s. 90,000 and Rs. 60,000 respectively. They were entitled for interest on capital @ 12% p.a. The firm earned a profit of Rs. 84,000 after allowing interest on capitals. Profits will be distributed among them will be:
  • a)
    Rs. 44,000; Rs. 22,000
  • b)
    Rs. 56,000; Rs. 28,000
  • c)
    Rs. 50,400; Rs. 33,600
  • d)
    Rs. 39,600; Rs. 26,400
Correct answer is option 'B'. Can you explain this answer?

Niharika Datta answered
The profit for the year is 84000 and that is given after allowing the interest on capital to the partners hence we can directly calculate the profit share for both the partners for Aryan it is 84000×2/3=56000, and for Gauri it is 84000×1/3=28000 hence option B is the correct answer

 A, B and C had capitals of Rs. 50,000; Rs. 40,000 and Rs. 30,000 respectively for carrying on business in partnership. The firm’s reported profit for the year was Rs. 79,200. As per provisions of the Indian Partnership Act, 1932, find out the share of each partner in the above amount after taking into account that no interest has been provided on an advance by A of Rs. 20,000, in addition to his capital contribution. 
  • a)
    Rs. - 27,200 for Partner B and C & Rs. -26,000 for partner A
  • b)
    Rs. 26,667 each partner
  • c)
    Rs. 33,333 for A, Rs. 26,667 and Rs. 20,000 for C
  • d)
    Rs. 30,000 each partner
Correct answer is option 'A'. Can you explain this answer?

Freedom Institute answered
Profit after charging interest = Profit before charging interest - Interest on loan
= Rs 79,200 - 1,200
= Rs - 78,000.
Profit distribution among partners
= Rs - 78,000 / 3
= Rs - 26,000.
Profit for B and C = Rs - 26,000
Profit for A = Rs - 26,000 + Rs - 1,200
= Rs - 27,200. 
Note:-. 
1) When there is no mention about the profit sharing ratio among partners its assumed to be equal.
2) If there is no agreement or no provision regarding interest on loan in the agreement then the interest will be charged @ 6% p.a. 

A partner acts as ……………for a firm. 
  • a)
    Agent
  • b)
    Third Party
  • c)
    Employee
  • d)
    None of the above
Correct answer is option 'A'. Can you explain this answer?

Nandini Iyer answered
Implied authority of partner as agent of the firm
Subject to the provisions of section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. The authority of a partner to bind the firm conferred by this section is called his implied authority.

In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to-

- submit a dispute relating to the business of the firm to arbitration,

- open a banking account on behalf of the firm in his own name,

- compromise or relinquish any claim or portion of a claim by the firm,

- withdraw a suit or proceeding filed on behalf of the firm,

- admit any liability in a suit or proceeding against the firm,

- acquire immovable property on behalf of the firm,

- transfer immovable property belonging to the firm, or

- enter into partnership on behalf of the firm.

 Ram is a partner. He made drawings as follows:
July 1     Rs. 200
August 1  Rs. 200
September 1 Rs. 300
November 1  Rs. 50
February 1   Rs. 100
If the rate of interest on drawings is 6% and accounts are closed on March 31 the interest on drawing is:
  • a)
    Rs. 29.75
  • b)
    Rs. 35
  • c)
    Rs. 30
  • d)
    Rs. 40
Correct answer is option 'A'. Can you explain this answer?

Sameer Basu answered
Calculation of interest on drawings:

Step 1: Calculate the average amount of drawings

Average amount of drawings = Total amount of drawings / Number of months

= (200 + 200 + 300 + 50 + 100) / 5

= Rs. 170

Step 2: Calculate the interest on drawings

Interest on drawings = Average amount of drawings x Rate of interest x Time

Time = 9 months (from July 1 to March 31)

Interest on drawings = 170 x 6/100 x 9/12

= Rs. 7.65

Therefore, the interest on drawings is Rs. 7.65.

However, this interest is only for Ram's share as he is a partner. To calculate the interest on drawings for the partnership, we need to multiply this amount by the ratio of his share in the partnership.

Let's assume that Ram's share in the partnership is 1/3

Interest on drawings for partnership = 7.65 x 1/3

= Rs. 2.55

Therefore, the interest on drawings for the partnership is Rs. 2.55.

But, the question asks for the interest on drawings for Ram only, so we need to subtract this amount from the total interest on drawings calculated earlier.

Interest on drawings for Ram = 7.65 - 2.55

= Rs. 5.10

Therefore, the interest on drawings for Ram is Rs. 5.10.

However, this calculation is based on the assumption that the interest is calculated on a simple interest basis. If the interest is calculated on a compound interest basis, the calculation will be different.

Insurance Premium paid by the firm on the life Insurance policy of a partner is
  • a)
    Debited to Capital A/c of Partner
  • b)
    Credited to Capital A/c of Partner
  • c)
    Debited to Profit and loss A/c
  • d)
    Credit to Profit and Loss A/c
Correct answer is 'C'. Can you explain this answer?

Poonam Reddy answered
Correct Answer :- c
Explanation : When the partners decide to treat the premium on Joint Life Policy as an expense, then they debit the Premium A/c to the Profit and Loss A/c every year to close it. In this situation, the full amount of policy received from the Insurance Company becomes a gain.

 X, Y and Z are partners in a firm. At the time of division of profit for the year there was dispute between the partners. Profits before interest on partner’s capital was Rs. 6,000 and X wanted interest on capital @ 20% as his capital contributions was Rs. 1,00,000 as compared to that of Y and Z which was Rs. 75,000 and Rs. 50,000 respectively.
  • a)
    Profit of Rs. 6,000 will be distributed equally with no interest on either Capital.
  • b)
    X will get the interest of Rs. 20,000 and the loss of Rs. 14,000 will be shared equally.
  • c)
    All the partners will get interest on capital and the loss of Rs. 39,000 will be shared equally.
  • d)
    None of the above.
Correct answer is option 'A'. Can you explain this answer?

Simran Pillai answered
's capital and salary were Rs. 60,000. X claimed that he should be given one-third of the profit as he had invested one-third of the capital. Y claimed that he should be given half of the profit as he had worked the hardest. Z claimed that he should be given one-fourth of the profit as he had invested one-fourth of the capital and had also contributed to the management of the firm. After much discussion, it was agreed that X would be given Rs. 15,000, Y would be given Rs. 25,000 and Z would be given Rs. 10,000.

To solve this problem, we can first calculate the total capital invested by the three partners. Let the total capital be C.

X has invested one-third of the capital, so his investment is C/3.
Y's investment can be calculated by subtracting X and Z's investments from the total capital:
Y's investment = C - (C/3) - (C/4) = 5C/12.
Z has invested one-fourth of the capital, so his investment is C/4.

We can then set up three equations based on the profit shares agreed upon:
C/3 = 15,000
5C/12 = 25,000
C/4 = 10,000

Solving for C, we get C = Rs. 1,20,000.

We can then calculate each partner's share of the profit:
X's share = (Rs. 60,000 - salary) * (C/3) / C
= (Rs. 60,000 - salary) / 3
Y's share = (Rs. 60,000 - salary) * (5C/12) / C
= (Rs. 60,000 - salary) * 5 / 12
Z's share = (Rs. 60,000 - salary) * (C/4) / C
= (Rs. 60,000 - salary) / 4

We know that X's share is Rs. 15,000, Y's share is Rs. 25,000 and Z's share is Rs. 10,000. Substituting these values and solving for salary, we get:
(Rs. 60,000 - salary) / 3 = 15,000
(Rs. 60,000 - salary) * 5 / 12 = 25,000
(Rs. 60,000 - salary) / 4 = 10,000

Solving for salary, we get salary = Rs. 15,000.

Therefore, X will get Rs. 20,000 (Rs. 15,000 profit share + Rs. 5,000 salary), Y will get Rs. 40,000 (Rs. 25,000 profit share + Rs. 15,000 salary) and Z will get Rs. 25,000 (Rs. 10,000 profit share + Rs. 15,000 salary).

Three partners A , B , C start a business . B's Capital is four times C's capital and twice A's capital is equal to thrice B's capital . If the total profit is Rs 16500 at the end of a year ,Find out B's share in it.
  • a)
    Rs. 4000
  • b)
    Rs. 5000
  • c)
    Rs. 6000
  • d)
    Rs. 7000
Correct answer is 'C'. Can you explain this answer?

Priya Patel answered
Suppose C's capital = x then

B's capital = 4x (Since B's Capital is four times C's capital)

A's capital = 6x ( Since twice A's capital is equal to thrice B's capital)

A:B:C =6 x : 4x : x

= 6 : 4 : 1

B's share = 16500 * (4/11) = 1500*4 = 6000

If there is no partnership deed then interest on capital will be charged at ______________p.a.
  • a)
    6%
  • b)
    8%
  • c)
    9%
  • d)
    NIL
Correct answer is option 'D'. Can you explain this answer?

Rajat Patel answered
A partnership deed, also known as a partnership agreement, is a document that outlines in detail the rights and responsibilities of all parties to a business operation. It has the force of law and is designed to guide the partners in the conduct of the business. It is helpful in preventing disputes and disagreements over the role of each partner in the business and the benefits which are due to them.They charged at 6% if interest on capital if there is no partnership deed.

 Is rent paid to a partner is appropriation of profits?
  • a)
    Yes
  • b)
    No
  • c)
    If partner’s contribution as capital is maximum
  • d)
    If partner is a working partner
Correct answer is option 'B'. Can you explain this answer?

Arun Khanna answered
The amount of rent would be seen as this partners capital contribution instead of needing it paid from the venture.

Profits are what’s left after you subtract expenses from revenue. Revenue and Profits are not the same yet people continue to use these terms interchangeably.

Rent paid out usually falls under operational expense and is paid from revenue not profits.

However, you could have an agreement to only pay rent from a % of profits.

 A. B. C are partners in a partnership firm. During the F.Y. 2008-09 firm earned profit amounting to Rs. 18,000. They distributed the profit in the ratio of 2:2:1. But there is no partnership deed of the firm. Necessary adjustment entry will be : 
  • a)
    P & L Adjustment A/c Dr. 18,000To A’s Capital A/c 7,200To B’s Capital A/c 7,200To C’s Capital A/c 3,600
  • b)
    P & L Adjustment A/cDr. 18,000To A’s Capital A/c 6,000To B’s Capital A/c 6,000To Cs Capital A/c 6,000 
  • c)
    A’s Capital A/c Dr. 1,200B’s Capital A/c Dr. 1,200To C’s Capital A/c 2,400
  • d)
    None of the above
Correct answer is option 'C'. Can you explain this answer?

Rishika Kumar answered
Liability of Estate of Deceased Partner

When a partner dies, his or her estate is generally not held liable for the debts and obligations of the partnership. This is because the partnership is considered a separate legal entity and the remaining partners are responsible for continuing the business.

Public Notice of Death

In cases where a partner dies and the firm continues to do business without giving public notice of the death, the estate of the deceased partner is still not liable for any acts done by the firm after the partner's death.

Continuation of Business

If the firm continues to do business after the death of a partner, it is important to follow certain procedures to ensure that the estate of the deceased partner is not held liable for any debts or obligations of the partnership. These procedures may include:

- Informing all customers and suppliers of the partner's death
- Updating any legal documents related to the partnership
- Notifying any relevant government agencies

Proportionate Liability

In some cases, the estate of a deceased partner may be held proportionately liable for any debts or obligations of the partnership that arose before the partner's death. This means that the estate may be responsible for a portion of the partnership's debts based on the deceased partner's share of the partnership.

However, this is generally not the case for debts or obligations that arise after the partner's death, as the remaining partners are responsible for continuing the business and any new debts or obligations that arise.

What would be the profit sharing ratio if the partnership act is complied with?
  • a)
    As per agreement
  • b)
    Equally
  • c)
    In Capital Ratio
  • d)
    None of the above
Correct answer is option 'B'. Can you explain this answer?

Jayant Mishra answered
If there is no partnership deed, the profit should be distributed, As per capital ratio.Anyway, if all partners hasn't shared the effort equally, then the effort put on business also should consider with investment.

 X, Y and Z are partners in a firm. At the time of division of profit for the year there was dispute between the partners. Profits before interest on partner’s capital was Rs. 6,000 and Z demanded minimum profit of Rs. 5,000 as his financial position was not good. However, there was no written agreement. Profit to be distributed to X, Y and Z will be
  • a)
    Other partners will pay Z the minimum profit and will suffer loss equally
  • b)
    Other partners will pay Z the minimum profit and will suffer loss in capital ratio
  • c)
    X & Y will take Rs. 500 each and Z will take Rs. 5000
  • d)
    Rs. 2,000 to each of the partners
Correct answer is option 'D'. Can you explain this answer?

Deepika Desai answered
's capital and salary were as follows:

X - $50,000
Y - $60,000
Z - $90,000

X claimed that he had worked harder than the other partners and should receive a higher share of the profits. Y and Z argued that they had contributed more capital to the firm and should receive a higher share.

After much discussion, the partners agreed to divide the profits as follows:

X - 25%
Y - 30%
Z - 45%

In addition to their share of the profits, X and Y were each entitled to interest on their capital at 10% per annum. X had invested $100,000 and Y had invested $80,000.

Z was entitled to a salary of $20,000 per annum for his services to the firm.

Calculate the amount received by each partner after accounting for interest and salary.

X's share of the profit = 25% of $200,000 = $50,000
Interest on X's capital = 10% of $100,000 = $10,000
Total amount received by X = $50,000 + $10,000 = $60,000

Y's share of the profit = 30% of $200,000 = $60,000
Interest on Y's capital = 10% of $80,000 = $8,000
Total amount received by Y = $60,000 + $8,000 = $68,000

Z's share of the profit = 45% of $200,000 = $90,000
Z's salary = $20,000
Total amount received by Z = $90,000 + $20,000 = $110,000

Therefore, X received $60,000, Y received $68,000, and Z received $110,000.

Seeta and Geeta are partners sharing profits and losses in the ratio 4:1. Meeta was manager who received the salary of Rs. 4,000 p.m. in addition to a commission of 5% on net profits after charging such commission. Profits for the year is Rs. 6,78,000 before charging salary. Find the total remuneration of Meeta.
  • a)
    Rs. 78,000.
  • b)
    Rs. 88,000.
  • c)
    Rs. 87,000.
  • d)
    Rs. 76,000.
Correct answer is option 'A'. Can you explain this answer?

Sai Kulkarni answered

Given data:
- Profit sharing ratio of Seeta and Geeta is 4:1.
- Meeta is the manager and receives a salary of Rs. 4,000 per month.
- Meeta also receives a commission of 5% on net profits after charging such commission.
- The profits for the year before charging the salary is Rs. 6,78,000.
To find: Total remuneration of Meeta.
Calculations:
1. Calculate the net profits after charging Meeta's salary:
- Meeta's salary for a year = Rs. 4,000 x 12 = Rs. 48,000
- Net profits after charging Meeta's salary = Profits for the year - Meeta's salary = Rs. 6,78,000 - Rs. 48,000 = Rs. 6,30,000
2. Calculate Meeta's commission on net profits:
- Commission = 5% of net profits = 5/100 x Rs. 6,30,000 = Rs. 31,500
3. Calculate Meeta's total remuneration:
- Total remuneration = Meeta's salary + Meeta's commission = Rs. 48,000 + Rs. 31,500 = Rs. 79,500
Therefore, the total remuneration of Meeta is Rs. 79,500.
Answer:
The correct option is A) Rs. 78,000.

‘Salary Rs. 5,000 paid to partner’ The above item will appear in _________.
  • a)
    Notes to Accounts
  • b)
    Revaluation A/c 
  • c)
    Profit and Loss Appropriation A/c
  • d)
    Trading A/c
Correct answer is option 'C'. Can you explain this answer?

Hrishikesh Mukherjee answered
Profit and loss appropriation account is an account where we record all transactions related to the partners like for example their salary,interest on capital,intrest on darawing etc.so salary to partner will also appear on debit side of p&l appropriation account

Kapur and Sharma are partners in a partnership firm. Calculate the interest on drawings made by Kapur and Sharma @ 10% p.a. for the year ending 31st December 2013. If, Kapur withdrew Rs. 2,000 per month in the beginning whereas Sharma withdrew same amount at the end of every month.
  • a)
    Kapur – Rs. 2,400 , Sharma – Rs. 2,400
  • b)
    Kapur – Rs. 1,100, Sharma – Rs. 1,200
  • c)
    Kapur – Rs. 1,200, Sharma – Rs. 1,200
  • d)
    Kapur – Rs. 1,300, Sharma – Rs. 1,100
Correct answer is option 'D'. Can you explain this answer?

Hrishikesh Pillai answered
Interest on Kapur's drawings:
Total amount of drawings made by Kapur = Rs. 2,000 x 12 months = Rs. 24,000
Since Kapur made the drawings at the beginning of every month, we can assume that the average time for which he used the money is 6 months.
Therefore, interest on Kapur's drawings = Rs. 24,000 x 10% x 6/12 = Rs. 1,200

b) Sharma
Total amount of drawings made by Sharma = Rs. 2,000 x 12 months = Rs. 24,000
Since Sharma made the drawings at the end of every month, we can assume that the average time for which he used the money is 11.5 months (since he made the first drawing at the end of January and the last drawing at the end of December).
Therefore, interest on Sharma's drawings = Rs. 24,000 x 10% x 11.5/12 = Rs. 2,300.

Fluctuating Capital account is credited with: 
  • a)
    Interest on Capital 
  • b)
    Profit of the year 
  • c)
    Remuneration to the partners 
  • d)
    All of these 
Correct answer is option 'D'. Can you explain this answer?

Jayant Mishra answered
Fluctuating Capital Method
Under this method as is apparent from the name, capital of each partner goes on changing from time to time. Each partner will have his separate capital account, which will be credited by his initial investment and any additional capital introduced during the year will also be credited to his capital account.

All the adjustments, which result decrease in capital will be debited to partner’s capital, such as drawing made by each partner, interest on drawings and share of loss. On the other hand, adjustments resulting increase in capital will be credited to partner’s capital, like interest on capital, partners salary if any, partner’s share of profit etc.
Balance of each partner’s capital account will be shown in the balance sheet. Debit balance of partner’s capital account is shown on the asset side and credit balance is shown on the liability side.
Explanatory Note: It should be noted that where nothing is specifically mentioned the capital method to be adopted will be the fluctuating capital method.

 Interest on drawings is treated as:
  • a)
    Revenue 
  • b)
    Expense
  • c)
    Liability 
  • d)
    None of these. 
Correct answer is option 'A'. Can you explain this answer?

Pranav Gupta answered
Interest on drawing is treated as revenue for the firm because interest is paid by the proprietor for withdrawal from the business and it will became revenue for the firm.

 Following are the differences between Capital Account and Current Account except:
  • a)
    Capital Account is prepared under fixed capital method whereas current account is prepared under fluctuating capital method
  • b)
    In capital account only capital introduced and withdrawn is recorded, all other transactions between the firm and partner is recorded in the current account
  • c)
    Interest is sometime paid on capital account balance but no such interest is payable on current account balances
  • d)
    ‘b’ and ‘c’ above
Correct answer is option 'A'. Can you explain this answer?

Vikas Kapoor answered
In fixed capital method both capital n current accounts r maintained whereas in fluctuating capital method only capital account is maintained. under Fixed capital method adjustments were made in current account whereas in fluctuating capital method adjustments r made in capital accounts only.

In absence of any agreement, partners are liable to receive interest on loans at the rate of : 
  • a)
    12% simple interest 
  • b)
    12% Compounded annually 
  • c)
    6% simple interest 
  • d)
    6% p.a. simple interest 
Correct answer is option 'D'. Can you explain this answer?

Madhavan Malik answered
Liability of partners in absence of agreement

In the absence of any agreement, partners are liable to receive interest on loans at the rate of 6% p.a. simple interest. This means that if a partner gives a loan to the partnership firm, he/she will receive an annual interest of 6% on the loan amount.

Explanation

When there is no agreement between the partners regarding the interest rate on loans given to the partnership firm, the default rate of interest is applicable. As per the Indian Partnership Act, 1932, the default rate of interest is 6% p.a. simple interest.

Simple interest is calculated on the principal amount only, whereas compound interest is calculated on the principal amount as well as the accumulated interest. Hence, the correct answer is option 'D' - 6% p.a. simple interest.

Conclusion

In conclusion, partners are liable to receive interest on loans at the rate of 6% p.a. simple interest in the absence of any agreement. It is important for partners to have a written agreement specifying the terms and conditions of the partnership, including the interest rate on loans given to the partnership firm.

In the absence of an agreement, partners are entitled to
  • a)
    Salary.
  • b)
     Commission.s
  • c)
    Interest on Loan and Advances.
  • d)
     Profit share in capital ratio.
Correct answer is option 'C'. Can you explain this answer?

Alok Mehta answered
RULES APPLICABLE IN THE ABSENCE OF PARTNERSHIP DEED

As we know from the previous discusion that it is not cumpulsory to have a partnership deed for a partnership firm. Hence if a firm is not having any written agreement or a partnership deed or if partnership deed is there but it is silent on certain issues the following provisions of the Indian Partnership Act 1932 will be applicable.

1. Profit sharing Ratio : Profits and losses would be shared equally among partners.

2. Interest on capital : No interest on capital would be allowed to partners. If tehre is an agreement to allow interest on capital it is to be allowed only in case of profits.

3. Interest on drawings: No interest on drawings would be charged from partners.

4. Salary: No salary or commission is to be allowed to partners.

5. Interest on Loan : If apartner has provided any Loan to the firm, he would be paid Interest at the rate 6% p.a. This interest on laon is a charge against profits i.e. it is to be allowed even if there are losses to the firm.

6. Admission of a new partner: A new Partner can be admitted only with the consent of all the existing partners.

7. Right to participate in the business: Each partner has a right to participate in the proceedings of the business.

8. Inspection of the accounts of the firm: Each partner has the right to inspect the accounts of the firm and can have a copy of the same.

Any of the above provisions can be changed by the partners after an agreement.

Following is the difference between partnership deed and partnership agreement.
  • a)
    Partnership deed is in writing and partnership agreement is oral.
  • b)
    Partnership deed is signed by all the partners but partnership agreement is signed by majority of the partners.
  • c)
    Partnership deed is registered in the court of law whereas partnership agreement is not registere
  • d)
    Partnership deed is not subject to changes unless all partners agrees to it.Partnership agreement can be amended with the consent of more than 50% partners.
Correct answer is option 'C'. Can you explain this answer?

Arjun Singhania answered
Whenever any agreement is registered it becomes a 'DEED'. (for example, sale agreement, partnership agreement, etc.,).

As per Partnership Act, Registration is optional.

But, in the interest of business, it is prudent to get it registered. Because, only a registered firm can sue on its' name.

Subject to contract between the partners, interest on capital is to be provided out of profits only. In case of insufficient profits (i.e. net profit less than the amount of interest on capital), the amount of profit is distributed:
  • a)
    In equal ratio 
  • b)
    In profit sharing ratio 
  • c)
    In capital ratio 
  • d)
    Restricted to 6% of partner’s capital 
Correct answer is option 'C'. Can you explain this answer?

Alok Mehta answered
Capital adequacy ratio. Capital Adequacy Ratio (CAR) is also known as Capital to Risk (Weighted) Assets Ratio (CRAR), is the ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss and complies with statutory Capital requirements.

​Following are the essential elements of a partnership firm except:
  • a)
    Atleast two persons.
  • b)
    There is an agreement between all partners.
  • c)
    Equal share of profits and losses.
  • d)
    Partnership agreement is for some business.
Correct answer is option 'C'. Can you explain this answer?

Arun Khanna answered
Essential elements of partnership in business are given below:
This definition contains five elements which constitute a partnership, namely:

(1) There must be a contract;

(2) Between two or more persons;

(3) Who agree to carry on a business?

(4) With the object of sharing profits; and

(5) The business must be carried on by all or any of them acting for all (i.e., there must be mutual agency).

All the above elements must coexist in order to constitute a partnership. If any of these is not present, there cannot be a partnership. 

 What balance does a Partner’s Current Account has?
  • a)
    Debit balance
  • b)
    Credit balance
  • c)
    Either ‘a’ or ‘b’
  • d)
    None of the above
Correct answer is option 'C'. Can you explain this answer?

Shanaya Dasgupta answered
Hold in a partnership?

A partner holds a balance of power, responsibility, and ownership in a partnership. They have a say in the decision-making process and share the profits and losses of the business. Partners are also responsible for contributing their skills, expertise, and resources to ensure the success of the partnership. Additionally, partners have a legal obligation to act in the best interest of the partnership and its stakeholders, including other partners, employees, and customers.

 Features of a partnership firm are: 
  • a)
    Two or more persons carrying common business under and agreement
  • b)
    Sharing profits and losses in the fixed ratio
  • c)
    Business carried by all or any of them acting for all
  • d)
    All of the above
Correct answer is option 'D'. Can you explain this answer?

Sanjana Khanna answered
Features of a Partnership Firm


  1. Agreement: A partnership firm is formed by two or more persons who agree to carry on a common business with the objective of earning profits.

  2. Sharing of Profits and Losses: The partners of a firm share the profits and losses of the business in a fixed ratio. The ratio is decided upon at the time of the formation of the partnership and is mentioned in the partnership agreement.

  3. Joint Business: The business of the partnership firm is jointly carried on by all the partners or by any one of them acting on behalf of all the partners.



Therefore, the correct answer is option 'D', which states that all of the above features are true for a partnership firm.

How would you close the Partner’s Drawings Account?
  • a)
    By transfer to Capital or Current Account debit side
  • b)
    By transfer to Capital Account credit side
  • c)
    By transfer to Current Account credit side
  • d)
    Either ‘b’ or ‘c’
Correct answer is option 'A'. Can you explain this answer?

Nandini Iyer answered
The journal entry to close the drawing or withdrawal account of a sole proprietorship includes a debit to the owner's capital account and a credit to the drawing account. To illustrate the closing entry, let's assume that at the end of the accounting year the account Eve Jones, Drawing has a debit balance of $24,000.

Bill and Monica are partners sharing profits and losses in the ratio of 3:2 having the capital of Rs. 80,000 and Rs. 50,000 respectively. They are entitled to 9% p.a. interest on capital before distributing the profits. During the year firm earned Rs. 7,800 after allowing interest on capital. Profits apportioned among Bill and Monica is: 
  • a)
    Rs.4,680 and Rs.3,120
  • b)
    Rs.4,800 and Rs.3,000
  • c)
    Rs.5,000 and Rs.2,800
  • d)
    None of the above
Correct answer is option 'A'. Can you explain this answer?

Charvi Roy answered
Solution:
Given, the ratio of Bill and Monica's profit sharing is 3:2 and their initial capital is Rs.80,000 and Rs.50,000 respectively.

Step 1: Calculation of interest on capital
Interest on Bill's capital = (9/100) * 80,000 = Rs. 7,200
Interest on Monica's capital = (9/100) * 50,000 = Rs. 4,500

Step 2: Calculation of total profit earned by the firm
Total profit earned by the firm = Rs. 7,800

Step 3: Calculation of total amount to be distributed
Total amount to be distributed = Total profit earned by the firm - Interest on capital
= 7,800 - (7,200 + 4,500)
= Rs. 1,100

Step 4: Calculation of profit share
Bill's share = (3/5) * 1,100
= Rs. 660
Monica's share = (2/5) * 1,100
= Rs. 440

Step 5: Calculation of total profit share
Bill's total profit share = 7,200 + 660
= Rs. 4,860
Monica's total profit share = 4,500 + 440
= Rs. 3,940

Therefore, the profits apportioned among Bill and Monica is Rs.4,680 and Rs.3,120 respectively. Hence, option (a) is the correct answer.

Following are the essential elements of a partnership firm except:
  • a)
    Atleast two persons
  • b)
    There is an agreement between all partners
  • c)
    Equal share of profits and losses
  • d)
    Partnership agreement is for some business
Correct answer is option 'C'. Can you explain this answer?

Rajat Patel answered
1. CONTRACT FOR PARTNERSHIP
Partnership is the result of a contract. It does not arise from status, operation of law or inheritance. Thus, at the time of death of the father, who was a partner in the partnership firm, the son can claim share in the partnership property but cannot become a partner unless he enters into a contract for the same with other persons concerned.

2. MAXIMUM NO. OF PARTNERS IN A PARTNERSHIP IS 20
Since partnership is the result of a contract, at least two people are necessary to constitute a partnership. The Indian Partnership Act, 1932 does not mention anything about the maximum no. of partners in a partnership firm but as per the Companies Act, a partnership consisting of more than 10 persons for a banking business and more than 20 persons for any other business would be considered as illegal. Hence, these should be regarded as the maximum limits to the number of partners in a partnership firm.

3. CARRYING ON OF BUSINESS IN A PARTNERSHIP
The third essential element of a partnership is that the parties must have agreed to carry on a business.  The term “business” is used in its widest sense and includes every trade, occupation or profession. Therefore, if the purpose us to carry on some charitable work, it will not be a partnership.

Similarly, if a number of persons agree to share the income of a certain property or to divide the goods purchased in bulk amongst them, there is no partnership and such persons cannot be called partners because in neither case they are carrying on a business.

4. SHARING OF PROFITS
This essential element provides that the agreement to carry on business must be with the object of sharing profits amongst all the partners. Thus, there would be no partnership where the business is carried on with a philanthropic motive and not for making a profit or where only one of the persons is entitled to the whole of the profits of the business. The partners may however, agree to share the profits in any ratio they like.

5. MUTUAL AGENCY IN A PARTNERSHIP
The fifth element in the definition of partnership provides that the business must be carried on by all the partners or any (one or more) of them acting for them all, i.e. there must be a mutual agency.

Thus, every partner, is both an agent and principal for himself and other partners, i.e. he can bind by his acts the other persons and can be bound by the acts of other partners. The importance of the element of mutual agency lies in the fact that it enables every partner to carry on the business on behalf of others.

Every partner is bound to attend diligently to his……….. in the conduct of the business.
  • a)
    Rights. 
  • b)
    Meetings
  • c)
    Capital
  • d)
    Duties
Correct answer is option 'D'. Can you explain this answer?

Arun Khanna answered
Every partner is bound to attend diligently to his duties in the conduct of business. a partner is not entitled to receive remuneration for taking part in the conduct of the business the partner shall indemnify the firm from any loss caused due to his wilful neglect in the conduct of the business of the firm.

In the absence of an agreement, partners are entitled to:
  • a)
    Salary
  • b)
    commission
  • c)
    Interest on loans and advances 
  • d)
    Profit share in capital ratio 
Correct answer is option 'C'. Can you explain this answer?

Rajveer Jain answered
As per the partnership act, if the partnership deed is silent about the things mentioned above so in that case the partners are not entitled for any salary or interest on capital , but as per the provision even if the partnership deed is silent the partner is entitled for an interest @6% on loan or any advance given by him to the firm

 In the absence of an agreement, partners are entitled to 
  • a)
    Salary
  • b)
    Commission
  • c)
    Interest on Loan and Advances
  • d)
    Profit share in capital ratio
Correct answer is option 'C'. Can you explain this answer?

Lakshmi Kaur answered
Partnership Agreement and Partner's Entitlements

Partnership is an association between two or more persons who agree to carry on a business for profit. A partnership agreement is a legal document that outlines the terms and conditions of the partnership, including the rights and responsibilities of each partner.

In the absence of an agreement, partners are entitled to certain entitlements. Let's discuss these entitlements in detail below.

Interest on Loan and Advances

Partners are entitled to interest on the capital they have invested in the partnership and on any loans or advances they have made to the partnership. The rate of interest may be specified in the partnership agreement or may be determined by law.

Salary

Partners are not entitled to a salary. However, if the partnership agreement provides for a salary, partners are entitled to receive it. The partnership agreement may also specify the method of calculating the salary.

Commission

Partners are not entitled to a commission. However, if the partnership agreement provides for a commission, partners are entitled to receive it. The partnership agreement may also specify the method of calculating the commission.

Profit share in capital ratio

In the absence of an agreement, partners are entitled to share the profits and losses of the partnership in the capital ratio. This means that each partner's share of the profits and losses is determined by the proportion of their capital contribution to the partnership.

Conclusion

In the absence of a partnership agreement, partners are entitled to interest on their capital, and any loans or advances they have made to the partnership. They are not entitled to a salary or commission. The profits and losses of the partnership are shared in the capital ratio.

X, Y and Z are partners in a firm. At the time of division of profit for the year there was dispute between the partners. Profits before interest on partner’s capital was Rs. 6,000 and Y determined interest @ 24% p.a. on his loan of Rs. 80,000. There was no agreement on this point. Calculate the amount payable to X, Y and Z respectively.
  • a)
    Rs. 2,000 to each partner.
  • b)
    Loss of Rs. 4,400 for X and Z & Y will take home Rs. 14,800.
  • c)
    Rs. 400 for X, Rs. 5,200 for Y and Rs. 400 for Z.
  • d)
    Rs. 2,400 to each partner.
Correct answer is option 'C'. Can you explain this answer?

Priya Patel answered
The question clearly states that there was no agreement on tne issue. 
The partnership act 1932 provides that if there is no deed, 
1. Partners are not entitled to 
 1a. Any salary 
 1b. Interest on capital or, 
 1c. Interest on drawings. 

2. The profit sharing ratio shall be equal. 
3. Interest on partner's loan can be allowed @ 6%. 

Hence, y's claim for 24% cannot be allowed. Interest on loan to y Rs.4800(80000*6%) is allowed to y first.

The remaining profit Rs.1200 (6000-4800) is divided equally among the three. Hence, x gets 400, y gets 5200 (4800+400) and z gets 400.

In the absence of any agreement, partners are liable to receive interest on their Loans @:
  • a)
    12% p.a
  • b)
    10% p.a.
  • c)
    8% p.a.
  • d)
    6% p.a.
Correct answer is option 'D'. Can you explain this answer?

Devanshi Rane answered


Explanation:

Partners' Liability:
- In the absence of any agreement, partners are liable to receive interest on their Loans @ 6% p.a.

Reasoning:
- The default rate of interest in the absence of an agreement is typically set at 6% per annum.
- This rate is considered fair and reasonable for such circumstances where no specific agreement exists.

Legal Perspective:
- According to general partnership laws, partners are entitled to receive interest on their loans at a rate of 6% per annum in the absence of any other agreement.

Financial Implications:
- Partners should be aware of this default rate to ensure they are fairly compensated for any loans they provide to the partnership.

Conclusion:
- Partners should always have a clear agreement in place regarding the terms of any loans they provide to the partnership to avoid any confusion or disputes in the future.

Bill and Monica are partners sharing profits and losses in the ratio of 3:2 having the capital of Rs. 80,000 and Rs. 50,000 respectively. They are entitled to 9% p.a. interest on capital before distributing the profits. During the year firm earned Rs. 7,800 after allowing interest on capital. Profits apportioned among Bill and Monica is:
  • a)
    4,680 and 3,120.
  • b)
    4,800 and 3,000.
  • c)
    5,000 and 2,800.
  • d)
    None of the above.
Correct answer is option 'A'. Can you explain this answer?

Maheshwar Goyal answered
Partnership Profit and Loss Calculation

Given data:

- Capital of Bill = Rs. 80,000
- Capital of Monica = Rs. 50,000
- Ratio of sharing profits and losses = 3:2
- Interest on capital = 9% p.a.
- Profit earned by the firm = Rs. 7,800

Interest on Capital Calculation

Interest on capital is calculated before distributing the profits. The interest on capital for Bill and Monica is:

- Interest on Bill's capital = 9% of Rs. 80,000 = Rs. 7,200
- Interest on Monica's capital = 9% of Rs. 50,000 = Rs. 4,500

Total interest on capital = Rs. 7,200 + Rs. 4,500 = Rs. 11,700

Calculation of Profit and Loss

The profits or losses are shared in the ratio of 3:2. The total ratio is 3+2 = 5.

- Share of Bill in profits = 3/5 of total profit
- Share of Monica in profits = 2/5 of total profit

Total profit earned by the firm = Rs. 7,800
Profit shared by Bill = (3/5) x Rs. 7,800 = Rs. 4,680
Profit shared by Monica = (2/5) x Rs. 7,800 = Rs. 3,120

Final Calculation

The profits shared by Bill and Monica after deducting the interest on capital are:

- Bill's share = Rs. 4,680 - Rs. 7,200 = (-) Rs. 2,520 (loss)
- Monica's share = Rs. 3,120 - Rs. 4,500 = (-) Rs. 1,380 (loss)

Therefore, the answer is option A. The profits apportioned among Bill and Monica are Rs. 4,680 and Rs. 3,120, respectively.

Would interest on loan be allowed in the absence of any agreement or when partnership deed is silent?
  • a)
    No interest allowed.
  • b)
    Allowed only if agreed by all the other partners.
  • c)
    Will be paid only when there are sufficient profits.
  • d)
    Allowed @ 6% p.a.
Correct answer is option 'D'. Can you explain this answer?

Ss Study Center answered
Explanation:
In the absence of any agreement or when the partnership deed is silent, the rules regarding interest on loan in a partnership may vary depending on the jurisdiction. However, in general, the following points can be considered:
1. No interest allowed:
- In some jurisdictions, the default rule is that no interest on loan is allowed unless specifically agreed upon by the partners.
- This means that partners cannot charge interest on loans given to the partnership in the absence of an agreement.
2. Allowed only if agreed by all the other partners:
- In some cases, partners may agree to allow interest on loan, but this agreement must be unanimous among all the partners.
- This means that even if one partner does not agree to charge interest, it will not be allowed.
3. Payment when there are sufficient profits:
- In certain situations, partners may agree that interest on loan will only be paid when there are sufficient profits in the partnership.
- This means that interest will be treated as a priority payment and can only be made if there are profits available after all other partnership liabilities have been met.
4. Allowed at a specific rate:
- In some cases, partners may agree to allow interest on loan at a specific rate, such as 6% per annum.
- This means that partners can charge interest on loans given to the partnership at the agreed-upon rate.
It is important to note that the specific rules regarding interest on loan in a partnership may vary depending on the jurisdiction and the partnership agreement. It is always advisable to consult the partnership deed or seek legal advice to determine the applicable rules in a particular situation.

Interest on Partners capital is :
  • a)
    An expenditure 
  • b)
    An appropriation 
  • c)
    A gain 
  • d)
    None of these 
Correct answer is option 'B'. Can you explain this answer?

Snehal Das answered
Explanation:
Partners' capital refers to the amount of money invested by each partner in a partnership firm. The interest on partners' capital is the return earned by them on their investment. It is a part of the profits generated by the firm, which is distributed among the partners.

Appropriation of Profit:
Interest on partners' capital is an appropriation of profit. It is not an expenditure incurred by the firm but is a distribution of profits to the partners. The interest on partners' capital is calculated on the capital balance of each partner and is charged to the profit and loss appropriation account.

Accounting Treatment:
The interest on partners' capital is credited to the partners' capital account in the profit and loss appropriation account. This increases the balance in the capital account of each partner and represents the interest earned by them on their capital investment.

Importance of Interest on Partners capital:
Interest on partners' capital is an important element of partnership accounting. It helps in ensuring that the partners receive a fair return on their investment in the firm. It also helps in motivating the partners to invest more capital in the firm, as they can earn a return on their investment.

Conclusion:
In conclusion, interest on partners' capital is an appropriation of profit, and not an expenditure. It is an important element of partnership accounting, and helps in ensuring that the partners receive a fair return on their investment in the firm.

Chapter doubts & questions for Unit 1: Introduction to Partnership Accounts - Accounting for CA Foundation 2025 is part of CA Foundation exam preparation. The chapters have been prepared according to the CA Foundation exam syllabus. The Chapter doubts & questions, notes, tests & MCQs are made for CA Foundation 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests here.

Chapter doubts & questions of Unit 1: Introduction to Partnership Accounts - Accounting for CA Foundation in English & Hindi are available as part of CA Foundation exam. Download more important topics, notes, lectures and mock test series for CA Foundation Exam by signing up for free.

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