Fundamentals Of Partnership And Goodwill - 2 - Free MCQ Practice Test

Interest paid on debentures is a charge against the profit. Partnership Deed is mainly concerned with the appropriations and some charge. Main contents of partnership deed are interest on capital, interest on drawings, name of the firm, partners, their names and address etc.

There are two main views. One is from the accounting point of view, according to that, status of partnership is different i.e. it has a separate business entity. From the point of view of law, it has no separate business entity. Partners and firm are one.

Members of the firm are called partners. Proprietor word is mainly used in case of sole proprietorship. But in case of partnership persons join hands together to run a business are called partners. They contribute capitals individually and responsible for all profits or losses.

Sharing of profits is must for a partnership business. Profits earned by a partnership firm should be divided amongst partners in the agreed profit sharing ratio. If profit sharing ratio is not mentioned in the partnership deed or partnership deed is silent on the distribution of profits, in such a case profits will be shared equally.

Fixed capitals of the partners will remain fixed but there are two situations when fixed capitals of the partners may change:
1. When additional capital is introduced by the partners
2. When capital is withdrawn permanently under an agreement.

Mostly, the liability of the partners of a firm is unlimited. Their personal properties can be disposed off to pay the debts of the firm if required. The creditors can claim their dues from any one of the partner or from all of them, meaning partners are liable:
• Individually
• Collectively

The business of partnership can be carried on by all the partners or any one of them acting for all. Thus, every partner is principal as well as agent of other partners and of the firm. Thus,
(i) Each partner is liable for acts performed by other partners, 
(ii) Each partner can bind other partners and the firm by his acts done in the ordinary course of business.

The partners has taken a decision to provide employment to the women of economically backward section of the society. By this decision, partners are communicating the valued to the society i.e. financial security to the weaker section of society and social responsibility.

When rate of interest on capital is not mentioned in partnership deed, partners cannot claim for interest on capital. Interest on capital will be allowed to the partners only if rate of interest is mentioned in the partnership deed.

Correct Answer :- A

Explanation :  Loan interest to be provided @ 6% p.a.

Loan Amount = ₹ 20,000

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

A’s loan interest = 20,000 * 6/100 * 9/12

= 900

Calculation of Interest on loan:
Interest on A’s Loan = 40,000 × 5/100 × 6/12 = 1,000
Interest on B’s Loan = 20,000 × 5/100 × 6/12 = 500

A Revaluation Account is prepared in order to ascertain net gain or loss on revaluation of assets and liabilities and bringing unrecorded items into books. The Revaluation profit or loss is transferred to the capital account of all partners including retiring or deceased partners in their old profit sharing ratio.

Rent paid to a partner is a charge against the profit. It means it will reduce the profit. That’s why it is shown in Profit and Loss Account instead of Profit and Loss Appropriation Account.

Correct Answer :- d

Explanation : If a fixed amount is withdrawn on the first day of every quarter, then the interest is calculated on the amount withdrawn for a period of seven and half months.

Total drawings made by the partner during the whole year is 4000 * 4 = 16000

Interest on drawings = 16000 * 6/100 * 7.5/12

= 600

Interest due to X and Y is ?3,000 and ?2,000 (total Rs.5,000) but profit is only ?1,500. In this case Ratio of appropriation will be 3 : 2 (3,000 : 2,000). Now divide profit ?1,500 in Ratio of appropriation i.e. 3:2.

Salary paid to manager is a charge against the profit. It means this transaction will reduce the profit of the firm. All charge items are shown in profit and loss account only. That’s why salary paid to manager is shown in profit and loss account.

Salary paid to partner is an appropriation of profit. All appropriation items are shown in the Profit and loss appropriation account.

When a partner draws a fixed amount in the beginning of each quarter for his personal use then average period will be calculated as : Time after first drawing 12 months + Time after last drawing 3 months, and average period will be = 15/2 = 7.5.

When accounts are prepared under fluctuating capital method, only one account is prepared for the partners i.e. partners capital account. All items related to partners i.e. capital, interest on capital, interest on drawings, salary, commission etc. are shown in partners capital account.