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Sampurna June 2024

Fundamental of Partnership DPP-01

(a) MCQ
1. If a firm prefers Partners’ Capital Accounts to be shown at the amount introduced by the partners as capital in firm
then entries for salary, interest, drawings, interest on capital and drawings and profits are made in
(1) Trading Account
(2) Profit and Loss Account
(3) Partners’ Current Account
(4) None of the Above

2. In the absence of any agreement, partners are liable to receive interest on their Loans @ …….
(1) 12 % p.a.
(2) 10 % p.a.
(3) 6 % p.a.
(4) 18 % p.a.

3. The relationship between persons who have agreed to share the profit of a business carried on by all or any of them
acting for all is known as ………
(1) Partnership.
(2) Joint Venture.
(3) Association of Persons
(4) None of the Above

4. In the absence of an agreement, partners are entitled to

(1) Interest on Loan and Advances.
(2) Commission.
(3) Salary.
(4) Interest on Capital

5. Partners are supposed to pay interest on drawings only when ……… by the ……… .
(1) Provided, Agreement.
(2) Agreed, Partners
(3) Both (a) & (b) above.
(4) None of the Above

6. When a partner is given a guarantee by the other partner, loss on such guarantee will be borne by …….
(1) Partner who gave the guarantee
(2) All the other partners.
(3) Partnership firm.
(4) None of the Above
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7. A, B and C had capitals of ₹ 50,000; ₹ 40,000 and ₹ 30,000respectively for carrying on business in partnership. The
firm’s reported profit for the year was ₹ 80,000.. 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 ₹ 20,000, in addition to his capital contribution.
(1) ₹ 26,267 for Partner B and C & ₹ 27,466 for partner A.
(2) ₹ 26,667 each partner.
(3) ₹ 33,333 for A, ₹ 26,667 for B and ₹ 20,000 for C.
(4) ₹ 26,267 each partner.

8. 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 ₹ 6,000 and X wanted interest on capital @ 20% (but it
wasn't mentioned in the partnership deed) as his capital contributions was ₹ 1,00,000 as compared to that of Y and
Z which was ₹ 75,000 and ₹ 50,000 respectively.
(1) Profits of ₹ 6,000 will be distributed equally with no interest on either Capital.
(2) X will get the interest of ₹ 20,000 and the loss of ₹ 14,000 will be shared equally.
(3) All the partners will get interest on capital and the loss of ₹ 39,000 will be shared equally.
(4) None of the Above

9. 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 ₹ 6,000 and Y determined interest @ 24 % p.a. on his loan
of ₹ 80,000. There was no agreement on this point. Calculate the amount payable to X, Y and Z respectively.
(1) ₹ 2,000 to each partner.
(2) Loss of ₹ 4,400 for X and Z & Y will take home ₹ 14,800.
(3) ₹ 400 for X, ₹ 5,200 for Y and ₹ 400 for Z.
(4) None of the Above

10. 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 ₹ 6,000 and Z demanded minimum profit of ₹ 5,000 as his
financial position was not good. However, there was no written agreement. Profits to be distributed to X, Y and Z
will be
(1) Other partners will pay Z the minimum profit and will suffer loss equally.
(2) Other partners will pay Z the minimum profit and will suffer loss in capital ratio.
(3) ₹ 2,000 to each of the partners.
(4) None of the Above

(b) True/False
11. In absence of any agreement partners share profits of the business in the ratio of their capital contribution.

12. Profit sharing ratio and capital contribution ratio need not be same.

13. Every partnership firm must register itself with Registrar of firms.

14. A partner can advance loan to the partnership firm in addition to capital contributed by him.

15. A partner can demand interest on capital even if it is not provided in the partnership deed.
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16. If a partner does not take part in day to day business activities of the firm then he is not entitled to any share of
profit.

17. Interest should be paid @ 6% p.a. on partners’ loan even if it is not provided in the partnership deed.

18. Husband and wife cannot be partners in the same firm.

19. One senior partner is Principal and other partners are his agents.

20. Partners are the agents of the firm and each other.

(c) Sub
21. Write short note on features of partnership.

22. Write a short note on Powers of Partners.

23. Distinguish between Fixed capital and fluctuating capital.

24. Weak, Able and Lazy are in partnership sharing profits and losses in the ratio of 2: 1: 1. It is agreed that interest on
capital will be allowed @10% per annum and interest on drawings will be charged @8% per annum. (No interest
will be charged/allowed on Current Accounts). The following are the particulars of the Capital and Drawings
Accounts of the partners:

Weak Able Lazy

₹ ₹ ₹

Capital (1.1.2019) 75,000 40,000 30,000

Current Account (1.1.2019) 10,000 5,000 5,000

(𝐷𝑟. )

Drawings 15,000 10,000 10,000

The draft accounts for 2019 showed a net profit of ₹ 60,000 before taking into account interest on capitals and
drawings and subject to following rectification of errors:
(a) Life Insurance premium of Weak amounting to ₹ 750 paid by the firm on 30th June, 2019 has been charged
to Miscellaneous Expenditure A/c.
(b) Repairs of Machinery amounting to ₹ 10,000 has been debited to Plant Account and depreciation thereon
charged @ 20%..
(c) Travelling expenses of ₹ 3,000 of Able for a pleasure trip to U.K. paid by the firm on 30th June, 2019 has
been debited to Travelling Expenses Account.
You are required to prepare the Profit and Loss Appropriation Account, Current Accounts of partners Weak, Able
and Lazy for the year ended 31st December, 2019.

25. Ram and Rahim are in partnership sharing profits and losses in the ratio of 3:2. As Ram, on account of his
advancing years, feels he cannot work as hard as before, the chief clerk of the firm, Ratan, is admitted as a partner
with effect from 1st January, 2019, and becomes entitled to 1/10th of the net profits and nothing else, the mutual
ratio between Ram and Rahim remaining unaltered.
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Before becoming a partner, Ratan was getting a salary of ₹ 500 p.m. together with a commission of 4% on the net
profits after deducting his salary and commission.

It is provided in the partnership deed that the share of Ratan’s profits as a partner in excess of the amount to which
he would have been entitled if he had continued as the chief clerk, should be taken out of Ram’s share of profits.

The net profit for the year ended December 31, 2019 is ₹ 1,10,000. Show the distribution of net profit amongst the
partners.
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Answer Key
1. (3) 16. (False)

2. (3) 17. (True)

3. (1) 18. (False)

4. (1) 19. (False)

5. (3) 20. (True)

6. (1) 21. (H & S)

7. (1) 17. (True)

8. (1) 18. (False)

9. (3) 19. (False)

10. (3) 20. (True)

11. (False) 21. (H & S)

12. (True) 22. (H & S)

13. (False) 23. (H & S)

14. (True) 24. (H & S)

15. (False) 25. (H & S)

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Hints & Solutions

1. (3)
If a firm follows the Fixed Capital Method, In such a case, initial capital introduced is credited to the Partners'
Capital Accounts, and all other transactions and events are posted to the Partners' Current accounts.

2. (3)
According to Partnership Act 1932, if the partnership deed is silent about the interest on the loan granted by a
partner, the loan shall be paid off with an interest rate of 6% per annum.

3. (1)
The Partnership is defined as the relation between two or more parties who have agreed to share the profit of a
business that is run by all the partners of the firm or any one of them who acts for all.

4. (1)
• If the partnership agreement is silent, the provision of the Partnership Act 1932 shall apply.
• According to Partnership Act 1932, partners are to be paid interest on loans and advances advanced by them
at the interest rate of 6% per annum if the agreement is silent.
• Commission, Interest on Capital, and Salary are not to be paid in the absence of an agreement.

5. (3)
• Partners are supposed to pay interest on drawings only when provided by the agreement.
• Partners are supposed to pay interest on drawings only when agreed by the partners.

6. (1)
When a guarantee is given to a partner by any other partner, loss on such guarantee will be borne by the partner
only who gave the guarantee.

7. (1)
As per the Indian Partnership Act 1932, interest @ 6% p.a. is provided on advance or loan advanced by the partner
if nothing is mentioned in the partnership deed. So the interest of @ 6% will be given on ₹ 20,000, i.e., ₹ 1,200. So
the remaining profit is ₹ 78,800, which will be distributed among partners in equal ratio, i.e., 1:1:1 as nothing is
mentioned in the Partnership Deed about the profit sharing ratio. So B & C will get ₹ 26,267 (78,800/3), and A will
get ₹ 26,267+₹ 1,200, i.e., ₹ 27,467.
Hence, option ₹ 26,267 for Partner B and C & ₹ 27,466 for partner A is correct.

8. (1)
As per the Partnership Act 1932, if nothing is mentioned in the Partnership Deed, no interest on capital is to be
given to the partners. So the partners will share profits of ₹ 6,000 in an equal ratio. Therefore, option Profits of ₹
6,000 will be distributed equally with no interest on either Capital is correct
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9. (3)
As per the Indian Partnership Act 1932, interest @ 6% p.a. is to be provided on advance or loan given by a partner
to the firm if nothing is mentioned in the partnership deed. So the interest of @ 6% will be given on ₹ 80,000 , i.e.,
₹ 4,800. So the remaining profit is ₹ 1,200, which will be distributed equally among partners, i.e., in 1:1:1 ratio, as
nothing is mentioned in the partnership deed about the profit sharing ratio. So X & Z will get ₹ 400, and Y will get
₹ 4,800+₹ 400, i.e., ₹ 5,200.

10. (3)
As per the Partnership Act 1932, if nothing is mentioned in the deed, then no special allowances are allowed to any
partner. So the partners will share the profit ₹ 6,000 in the ratio 1:1:1. So Z's request will not be entertained, and ₹
2,000 will be given to each of the partners.
Hence option ₹ 2,000 to each of the partners is correct.

11. (False)
If the agreement is silent about the profit-sharing ratio, the business profits are shared equally among the partners
and not in their capital contribution ratio.

12. (False)
• The profit-sharing ratio and the capital contribution ratio do not need to be the same always.
• A partner contributing a higher amount of capital may have a lower share in profits, and the partner
contributing less amount of capital may have a higher share in the firm's profit.

13. (False)
The given statement is false as under Partnership Act 1932; it is not compulsory for a partnership firm to get itself
registered.

14. (True)
In addition to the amount of capital a partner contributes, he can also provide a loan to his partnership firm. If the
partnership deed is silent about the interest rate on the partner's loan, the partner's loan will be paid off with a 6%
per annum interest rate.

15. (False)
The given statement is false because if the partnership deed is silent about the interest on capital, then no interest on
capital is to be allowed to any partner.

16. (False)
• The given statement is false because sharing of profits is an important criterion to be called a partner of a
firm.
• No person is a partner if he does not share in the profits of the firm.
• A person is a partner even if he does not take part in the day-to-day activities, and such a partner is entitled to
receive his share of the profit.
• Example: Sleeping Partner.

17. (True)
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The given statement is true because even if the Partnership deed is silent about the interest rate on the partner’s
loan, it is to be paid off with an interest rate of 6% per annum.

18. (False)
The given statement is false because:
• There is no boundation by the Partnership Act 1932 on any person to become a partner in the partnership firm.
• However, a minor can be admitted to a partnership firm as a partner only if he is admitted to sharing the profits
and not the losses.
• However, the number of partners should be at most 50 in any case.
Therefore husband and wife can be partners in the same firm.

19. (False)
The given statement is false as:
• There is no concept of senior and junior among parters of a firm.
• Every partner stands in the position of a principal and an agent simultaneously with other partners. This is the
relationship of mutual agency.

20. (True)
The given statement is true as:
• The concept of mutual agency applies to each partner and the partnership firm.
• It states that every partner is a principal to and an agent of other partners and the partnership firm.

21. (H & S)
1. Existence of an agreement: A partnership is the result of an agreement between the parties. This agreement can
be written or oral. However, it is not necessary to create a partnership agreement.
2. Sharing of profits: The partners must share the profits of the business. When there is no sharing of profit, there is
no partnership.
3. Mutual agency: This means that the partners are agents as well as principals of each other. Thus they can be held
liable for each other’s actions.
4. Minor as a partner: Minor can also be added as a partner, but he can have a share in profits only.

22. (H & S)
The Partners are supposed to have the power to act on some issues and not to have such powers on others. In the
case of a trading firm, the implied powers of partners are the following:
• Buying and selling of goods.
• Drawing cheques and drawing, accepting and endorsing negotiable instruments in the name of the firm.
• Borrowing money on behalf of the firm.
• Engaging servants for the business of the firm.

23. (H & S)
Fixed Capital:
1. The capital of the partners is fixed and all the adjustments are made through Partner’s Current A/c.
2. Two separate accounts are prepared i.e Capital A/c and Current A/c.
3. Current A/c can show either debit or credit balance.
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Fluctuating Capital:
1. Partner’s capital keep on fluctuating or changing.
2. Only one account is prepared i.e Capital a/c
3. Capital a/c can show only credit balance.

24. (H & S)
Weak, Able & Lazy
Profit and Loss Appropriation Account
for the year ended 31st December, 2019

₹ ₹ ₹ ₹

To Interest By Net Profit 55,750

on (Adjust
Capital ed)
: 7500
Weak 4000
By Interest on
Able 3000 14,500 Drawin
Lazy gs:
Weak
To Partner’s Able 630
Curren Lazy 520
t A/cs - 400 1,550
Share
of
profit :
Weak 21,400
Able 10,700
Lazy 10,700 42,800

57,300 57,300

Working Notes:
1. Adjusted Profit:

Particulars

Net Profit as per Profit & Loss A/c 60,000

Add : Drawings by Weak:
Life Insurance Premium of Weak charged
to Miscellaneous Expenditure A/c 750
Drawings by Able :
Travelling expenses of Able in connection
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with pleasure trip to U.K. charged to

travelling expenses A/c. 3,000
Less: Repairs to Machinery wrongly capitalised (10,000)
Add : Depreciation charged @ 20% 2,000

55,750

2. Interest on Drawings:

Weak Able Lazy

Drawings 15,000 10,000 10,000

Adjustment 750 3,000

Total drawings 15,750 13,000 10,000

Interest on Drawings @ 8% 630 520 400

p.a. for 6 months

3. Partners’ Current A/c

Partners’ Current Accounts
(In 000)

Weak Able Lazy Weak Able Lazy

To Balance - - 5 By Bal b/d 10 5

b/d
By P & L
To Drawings App. A/c 7.5 4 3
A/c (Interest on
15 10 10
Capital)
To Life
insura By P & L
nce App. A/c
Premi 0.75
um (Share of
Profit) 21.4 10.7 10.7

To Traveling
Expen By balance
ses 3 c/d

To P & L 1.7
App.
A/c
(Intere 630 520 400
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st on
Drawi
ngs)

To Bal c/d

22.52 6.18

38.9 19.7 15.4 38.9 19.7 15.4

25. (H & S)
Amount due to Ratan as a Chief Clerk

Salary (₹ 500 × 12 𝑚𝑜𝑛𝑡ℎ𝑠) ₹ 6,000

4 ₹ 4,000
Commission (₹ 1,04,000 × )
104
1
Less: Share as a partner ( × ₹ 1,10,000)
10 (₹ 11,000)

Excess to be taken from Ram (₹ 1,000)

Profit and Loss Appropriation Account

for the year ended Dec 𝟑𝟏, 𝟐𝟎𝟏𝟗

Particulars Amount Particulars Amount

To Share of Profits By P & L A/c 1,10,000

Ram (Net Profits)
3
(1,10,000 − 10,000) ×
5
Less: to Ratan (₹ 1,000) 59,000

Rahim
2
(1,10,000 − 10,000) × 40,000
5

11,000
Ratan

1,10,000 1,10,000

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