Question by CA (Dr.) G.S.GREWAL, Series – 4
Fill in the Blank
- Partners may or may not have written ____________________.
True / False
- Partnership is the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all.
Multiple Choice Question
- In case partners have guaranteed profit to a partner and deficiency of profit. The deficiency happens it is borne by
(a) All the partners in new profit sharing ratio
(b) Remaining partners in the ratio in which they have given guarantee
(c) All the partners in sacrificing ratio.
(d) All the partners in old profit sharing ratio.
Answer Series – 4
- Partnership Deed
Reason: It is one of the essential characteristic of Partnership that it is a relation between persons who have agreed to share profits of business carried on by all or any of them acting for all.
Reason: The Partners have an agreement with the other partner to give him a minimum profit. The deficiency thus, will be borne by the guaranteeing partner in the ratio in which they have guaranteed the minimum profit. If the ratio of guarantee is not given, they will share the deficiency in their profit – sharing ratio.
Question Series – 14
- Relationship between the partners is of Senior – subordinate.
- Manager’s commission is a _________________ against profit.
- If the partnership deed provides for payment of interest on capital of the partners, then interest can be paid only out of
(a) Accumulated Profits
(b) Past Year’s Profits
(c) Current Year’s Profits
(d) General Reserve
Answer Series -14
Reason: According to the Partnership Act, 1932, the partners are principals and agents of the partnership firm, who acts on the behalf of the firm.
Reason: If the Partnership Deed or agreement provides for the payment of interest on capital of the partners, interest can be paid out of current year’s profit only, and not from the past year’s profit or accumulated profits because it is for the current year and therefore is an appropriation of current year’s profit.
Question Series – 20
- In the absence of provision in the partnership deed, interest on loans given by the partners is allowed @ 6%.
- If a fixed amount is withdrawn by a partner on the first day of every month interest on the total amount is charged for _________________ months.
- There are two partners in a firm P and Q. R is admitted into the firm for 1/3th share of profit with the guaranteed annual profit of ₹ 18,000. Firm’s profit for the year is ₹ 42,000. What amount of profit would be given to R as his share of profit by the firm?
(a) ₹ 20,000
(b) ₹ 25,000
(c) ₹ 18,000
(d) ₹ 16,000
Answer Series – 20
Reason: If the partnership deed is silent on allowing interest on Loan to the partners, the provisions of the Partnership Act, 1932 shall apply. It provides that interest on Loan shall be allowed @ 6% p.a.
- 6.5 months
Reason: If fixed amount is withdrawn by partners on the first day of every month interest on the total amount is charged for 6.5 months.
Reason: R (new partner) has been guaranteed minimum profit of ₹ 18,000 per annum. His capital account will be credited by that amount, irrespective of his share at all.
Question Series – 34
- Profits and losses of partners in absence of oral or written agreement will be shared in the ratio in their Capital Ratio.
- The extension of Profit and Loss Account is _____________.
- Interest on Partner’s Capital Accounts is credited to:
(a) Partners’ Capital Accounts
(b) Revaluation Account
(c) Interest Account
(d) Goodwill Account
Answer Series – 34
Reason: The Partnership Act, 1932 provides that the parties to the partnership may determine the profit sharing ratio. But, in case they do not decide the profit sharing ratio, profit is to be shared equally.
- Profit and Loss Appropriation Account
Reason: Interest on capital is allowed to the partners on their capital balance. Interest allowed is credited to Partner’s Capital account. In the absence of information, it is assumed that Capital Accounts are maintained on Fluctuating Capital Accounts method hence, interest on Capital is credited to Partner’s Capital Accounts.
Question Series – 43
- A is drawing ₹1,000 p.m. on the last day of every month. If the rate of interest is 5% p.a. then the total interest chargeable from him in the accounting year ending on March 31, 2020 will be ₹ ₹ 275.
- A partnership firm cannot have more than _____________ partners and is prescribed in the ______________.
- A and B are partners sharing in the ratio 2 : 1. They decided to share in the ratio 3 : 2 in future. If the goodwill of the firm is valued at ₹ 60,000, how the adjustment in the profit will be affected?
(a) B pays A ₹ 4,000
(b) A pays B ₹ 4,000
(c) A pays B ₹ 6,000
(d) B pays A ₹ 6,000
Answer Series – 43
Reason: Interest will be charged @ 5% on ₹ 12,000 for 5 ½ months. Thus, interest will be ₹ 12,000 x 5% x 5 ½ / 12 = ₹ 275.
- 50, Companies Act, 2013
Reason: A B
New Ratio 3/5 2/5
Old Ratio 2/3 1/3
Gaining / Sacrificing Ratio (1/15) 1/15
i.e., B is the Gaining Partner while A is the Sacrificing Partner. Therefore, B will compensate A an amount equal to 1/15th of ₹ 60,000 i.e. ₹ 4,000.
Question – Series 56
- X & Y are partners sharing profits equally. Y draws ₹ 1,000 at the beginning of each month for six months year ended on 31st March, 2019. If interest on drawings is to be charged @ 6% p.a. The interest on drawings of Y will be ₹ 285.
- If there is no partnership deed or agreement the provisions of the ________ are applicable.
- P and Q are partners with a capital of ₹ 30,000 and ₹ 20,000 respectively. They are allowed interest @ 10% on the total capital. Interest allowed to P and Q will be:
(a) ₹ 1,500, ₹ 1,000
(b) ₹ 3,000, ₹ 2,000
(c) ₹ 2,000, ₹ 3,000
(d) ₹ 1,000, ₹ 1,000
Answer – Series 56
Reason: Total amount withdrawn will be ₹ 6,000. Rate of interest is 6%. Therefore, interest = ₹ 6,000X6X19 = ₹ 285
- Partnership Act, 1932
Reason: The rate of interest is 10%, and the amount of capital of P and Q is ₹ 30,000 and ₹ 20,000 respectively. Interest will be ₹ 3,000 and ₹ 2,000 respectively.
Question – Series 64
- Salary paid to a partner is debited to Partner’s Capital A/c.
- If Capital accounts are maintained on Fixed Capital Accounts method, Interest on Capital, Salary, Commission and share of profit is shown in the ____________ of Partner’s Current Account.
- In the absence of an agreement to the contrary, the partners are
(a) Entitled to 6% interest on their capitals, only when the firm earns profits.
(b) Entitled to 5% interest on their capitals, regardless whether the firm earns profits or not
(c) Entitled to interest on capital at the bank rate, only when there is profit
(d) Not entitled to any interest on their capitals
Answer – Series 64
Reason: Salary to a partner is debited to Profit & Loss Appropriation A/c as it is an appropriation of profit and not a charge on profit.
Reason: The absence of partnership deed on interest on drawing by the partners, the provisions of the Partnership Act, 1932 shall apply. It provides that interest on drawings will not be charged in such a situation.
Question – Series 67
- Current Accounts of the partners are opened when capital is withdrawn.
- In the absence of Partnership Deed, interest on Loan by partners to the firm is allowed @ _____________ .
- Interest on drawings of the partners is a
(a) Loss to the business
(b) Gain to the business
(c) Profit to partners
(d) Loss to partners
Answer – Series 67
Reason: Capital accounts of partners can be maintained following either Fixed Capital Method or Fluctuating Capital Method. If Fixed Capital Method is followed, two accounts are opened for each partner i.e. Capital Account and Current Account. Entries relating to additional capital being introduced and capital withdrawn are posted into the Fixed Capital a/c, while other entries such as salary, interest, profit or loss distribution etc. are posted to Current Account.
- 6% p.a.
Reason: Drawing is the amount withdrawn by the partners for their personal use. If the firm charges interest on the drawing made by a partner it will be a gain to the business and expense for the partner.
Question – Series 71
- If interest on capital is to be allowed as per the agreement, then interest on capital is calculated with reference to time and is calculated on Capital in the beginning.
- Interest on Drawings is charged if the Partnership Deed provides for it and whether the firm earns ______________ or not. .
- In the absence of provision in the partnership deed, interest on loans given by the partners is allowed @
(a) 8% p.a.
(b) 6% p.a.
(c) 10% p.a.
(d) 9% p.a.
Answer – Series 71
Reason: Interest is allowed on capital that is used in the business during the year. Therefore, interest is allowed on the opening capital.
Reason: If the partnership deed is silent on interest it is allowed as is provided in the Partnership Act, 1932. It provides that interest on loan shall be allowed @ 6% p.a.