Chapter 1 Introduction to Partnership

January 9, 2024 chinu

Chapter 1 Introduction to Partnership

Class 12 Accounts Introduction to Partnership Text Book Questions and Answers

1. Select the correct answer for each questions :

Question 1.What is the interest on partners’ capital for a partner ?
(A) An expense
(B) Liability
(C) Income
(D) Loss

Question 2.Under which method, the interest on capital keeps on changing during the year due to the changes in the capital ?
(A) Fluctuating capital accounts method
(B) Fixed capital accounts method
(C) Current accounts method
(D) None of above
Answer

Question 3.In which account and on which side the share of partners’ share profit is recorded under the fluctuating capital account method ?
(A) Debit to capital account
(B) Credit to capital account
(C) Debit to current account
(D) Credit to current account
Answer:
(B) Credit to capital account

Question 4.At the end of the year where will you transfer drawings accounts in fixed capital account method ?
(A) To capital account
(B) To current account
(C) To profit and loss account
(D) To profit and loss appropriation account

Question 5.How would you consider the interest on debit balance of pratners’ current account for firm ?
(A) An expense
(B) Liability
(C) Income
(D) Loss

Question 6.What is the interest on drawings of partners for a partner ?
(A) An expense
(B) Liability
(C) Income
(D) Loss
Answer:
(A) An expense

Question 7.Debit balance of profit and loss appropriation account means ………………
(A) Gross profit
(B) Gross loss
(C) Divisible profit
(D) Divisible loss

Question 8.What percentage of interest will be paid, when no provision is made pertaining to interest on capital in the partnership deed ?
(A) 6%
(B) 9%
(C) 12%
(D) No interest

Question 9.What percentage of interest will be paid on the loan lent by the partner to the firm, when no such provision is made in the partnership deed ?
(A) 6%
(B) 9%
(C) 12%
(D) No interest

Question 10.The capital proportion of A, B and C is 3 : 2 : 1 respectively. The divisible profit is ₹ 66,000. What will be the amount of profit of C ?
(A) ₹ 11,000
(B) ₹ 22,000
(C) ₹ 33,000
(D) ₹ 66,000

2. Answer the following questions in one sentence :

Question 1.What is partnership ?
Answer:
Partnership is the relation between the persons who have agreed to share the profit of a business carried on by all or any one of them acting for all.

Question 2.What is maximum and minimum limit of partners to constitute a partnership firm ?
Answer:
In the banking business minimum 2 and maximum 10 partners, while in the general firm
minimum 2 and maximum 20 partners are allowed.
As per Section-464 of Companies Act 2013, empowers the government to prescribe maximum number of partners to 100.

Question 3.What is a partnership deed for a firm ?
Answer:
The partnership deed is a administrative constitution of partnership firm, where all provisions pertaining to firms administration are included.

Question 4.Describe the objectives to prepare a partnership deed.
Answer:
Based on the written partnership deed, the solution of any misunderstanding or dispute in future can be obtained. On the basis of the provisions of the partnership deed.

Question 5.How are the administrative problems solved, when no written agreement is signed between the partners ?
Answer:
In absence of written agreement / partnership deed, administrative problems can be solved with the help of provisions of Partnership Act 1932.

Question 6.Describe state partners capital account methods of a partnership firm.
Answer:
There are two methods for partners capital account of a partnership firm.
(i) Fluctuating Capital Account method
(ii) Fixed Capital Account method.

Question 7.Profit of a partner is credited to which account under fixed capital account method ?
Answer:
Profit of a partner is credited to current account under fixed capital account method.

Question 8.Additional capital introduced by partner on permanent basis is credited to which account in the fixed capital account method ?
Answer:
Additional capital introduced by partner on permanent basis is credited to fixed capital account itself.

Question 9.The debit balance of current account of partners is shown on which side of balance sheet ?
Answer:
The debit balance of current account of partners is shown on Assets – Receivables side of
balance sheet.

Question 10.Write a journal entry to transfer drawings account to the capital account, at the end of the year.
Answer:
Partners’ capital A/c Dr.
To Partners’ drawings A/c
(Being transfer drawings account amount to capital account at the end of the year)

Question 11.Profit and loss appropriation account is a part of which account ?
Answer:
Profit and loss appropriation account is a part of profit and loss account.

3. Answer the following questions in brief :

4. Answer the following questions to the point :

Question 1.Explain the meaning of partnership.
Answer:
As per Indian Partnership Act 1932, Section-4, ‘Partnership is the relation between the persons who have agreed to share the profit of a business carried on by all or any one of them acting for all.’

As per Luise Henny, ‘two or more persons who are competent to undertake a contract to earn profit from a legal business is termed as partnership.

Thus, (1) partnership is created by contract. (2) Person who are competent to undertake a contract to earn profit from a legal business is known as partnership. (3) The person who enter into such relationship are individually called ’Partners’. (4) The business run collectively in partnership by two or more persons is known as partnership firm.

Question 2.Describe the Characteristics of partnership.
Answer:
Following are the characteristics of partnership :
(1) Creation by Contract: Partnership emerges through agreement. Partnership agreement can be in written or oral form. But written form of partnership deed is desirable and advisable.

(2) Profit Objective : Partnership firm takes place to earn and distribute profit. Distribution of profit or loss is done among partners in their predetermined proportion. If nothings is mentioned regarding profit-loss ratio, profit or loss is distributed among partners in equal ratio.

(3) Legal Business : Partnership firm is formed to do a legal business.

(4) Agent of each other : The business of partnership firm is run by all the partners or any one of them for all or more than one partner. Thus, we can say that each partner is an agent of each other.

(5) Number of partners : In the banking business minimum two and maximum ten while in general business firm minimum two and maximum twenty partners are allowed. Now a days, government restricted maximum number of partners in a firm to be 50 vide rule-10 of companies (Miscellaneous) Rules 2014.

(6) Unlimited Liabilities : As per Partnership Act, partners are responsible to pay business obligation from their personal property when the firm does not have sufficient assets to pay liabilities of the business. Every partner individually and collectively responsible to the partnership firm. Therefore, the liability of each partner is unlimited.

(7) Ownership and management : Partners are owners of the business and they do the management of the business. The management of business is done either by all the partners or by one partner or by more than one partner.

(8) Legal status : In Indian Partnership Act 1932, partners rights, duties, laws, registration of the firm and other provisions related to partnership are shown.

Question 3.Describe the accounting provisions of partnership Act 1932, in absence of a partnership deed.
Answer:
The following provisions of partnership Act 1932, will be applicable if no partnership deed is prepared or no clarification is made in the partnership deed.

1. Each partner contributes capital in the firm by mutual agreement. It is not mandatory to bring a capital for each partner.
2. Interest on capital cannot be paid and interest on drawings cannot be charged.
3. The distribution of profit and loss would remain in equal ratio.
4. Salary, bonus, commission or remuneration cannot be paid to the partners.
5. 6% p.a. interest is payable for the loan given by any partner to the firm.
6. In case of any reasonable expense incurred by the partner for the firm, the partner has right to reimburse it.

Question 4.What is profit-loss appropriation account ? Which items are disclosed in it ?
Answer:
Profit-loss appropriation account –

1. Profit-loss appropriation account is a special account to show the distribution of profit or loss among the partners of a firm.
2. Profit and loss appropriation account is always prepared after preparing profit and loss account.
3. Net profit or Net loss is carried forward to this account from profit and loss account.
4. By preparing profit and loss appropriation account, net divisible profit or loss can be known.
5. It is not compulsory to prepare profit and loss appropriation account separately.
6. Particulars included in the profit and loss appropriation account are shown below (In specimen form)

Question 5.Write Short Notes on :

(1) Partnership deed : The emergence of partnership is from the agreement. A written partnership deed is desirable and advisable. So, that the solution of any misunderstanding or dispute in future can be obtained on the basis of the provisions of partnership deed. The partnership deed is an administrative constitution of partnership firm, where all provisions pertaining to firm’s administration are included. Generally, the following content is included in the partnership deed.

(i) Details of partner : The information about name, address and other details of partners is included.

(ii) Details of firm : The details like name, address, objectives etc. of business firm are included here.

(iii) Type of business : The information about the type of business is also included here.

(iv) Commencement of partnership : The information about the commencement date of the partnership firm is included in the deed.

(v) Capital: The amount of capital introduced by each partner is mentioned in the deed. It is not compulsory for each partner to bring capital.

(vi) Interest on capital : On capital amount, whether interest is to be allowed or not is mentioned in this deed. If nothing is mentioned about the interest on capital, no interest on capital is allowed to partners.

(vii) Drawings : Maximum amount which can be withdrawn by a partner from a firm is also mentioned in the partnership deed.

(viii) Interest on drawings : On drawings amount whether interest is to be charged or not is mentioned in this deed. If nothing is mentioned about the interest on drawings no interest on drawings is to be charged from partners.

(ix) Profit-loss distribution ratio : In which proportion profit or loss of business will be distributed among the partners is provided in the partnership deed. If nothing is mentioned in partnership deed regarding profit-loss ratio, profit or loss will be equally distributed among partners.

(x) Salary, Bonus, Commission and Remuneration to the partners : If any partner takes active participation in the management of the partnership firm, a provision is made in the partnership deed for the payment of salary, bonus, commission and remuneration to the partners. If there is no provision in partnership act for the payment of salary, bonus, commission and remuneration to the partners.

(xi) Interest on loan given by partner to the firm : The rate of interest is to be mentioned in the partnership deed, when any partner has landed a loan to the firm. If no provision is made in the partnership deed, as per partnership act, 6% p.a. interest will be paid on the loan given by the partner to the firm. Interest on partners loan is treated as an expense of business and is debited to profit and loss account.

(xii) Goodwill : The computation to determine the value of goodwill at the time of the admission a new partner and at the time of retirement or death of a partner is also mentioned in the partnership deed.

(xiii) Admission or retirement of a partner : The provisions pertaining to admission of a
new partner and retirement or death of a partner is also mentioned in the partnership
deed.

(xiv) Dissolution of firm : In what circumstances firm will be dissolved ? What procedure will be adopted ? etc. are mentioned in the partnership deed.

(2)
Fluctuating capital accounts of partners : A method in which the opening balance of the capital account and the closing balance of the capital account of any partner is reported . fluctuated then it is known as Fluctuating or Temporary capital account method.

Under this method, to record all the transactions related to the partners, only one capital account is prepared in the books of the firm.
Under this method, balance of partners capital account has either debit or credit balance.
If there is credit balance in capital account, it would appear at the liability side of balance sheet and
If there is debit balance in capital account it would appear at the asset side of balance sheet.
The balances which are to be included in the partners capital account on the debit and
credit side, are as follows (specimen of account)

Question 5.Write Short Notes on :

(1) Partnership deed : The emergence of partnership is from the agreement. A written partnership deed is desirable and advisable. So, that the solution of any misunderstanding or dispute in future can be obtained on the basis of the provisions of partnership deed. The partnership deed is an administrative constitution of partnership firm, where all provisions pertaining to firm’s administration are included. Generally, the following content is included in the partnership deed.

(i) Details of partner : The information about name, address and other details of partners is included.

(ii) Details of firm : The details like name, address, objectives etc. of business firm are included here.

(iii) Type of business : The information about the type of business is also included here.

(iv) Commencement of partnership : The information about the commencement date of the partnership firm is included in the deed.

(v) Capital: The amount of capital introduced by each partner is mentioned in the deed. It is not compulsory for each partner to bring capital.

(vi) Interest on capital : On capital amount, whether interest is to be allowed or not is mentioned in this deed. If nothing is mentioned about the interest on capital, no interest on capital is allowed to partners.

(vii) Drawings : Maximum amount which can be withdrawn by a partner from a firm is also mentioned in the partnership deed.

(viii) Interest on drawings : On drawings amount whether interest is to be charged or not is mentioned in this deed. If nothing is mentioned about the interest on drawings no interest on drawings is to be charged from partners.

(ix) Profit-loss distribution ratio : In which proportion profit or loss of business will be distributed among the partners is provided in the partnership deed. If nothing is mentioned in partnership deed regarding profit-loss ratio, profit or loss will be equally distributed among partners.

(x) Salary, Bonus, Commission and Remuneration to the partners : If any partner takes active participation in the management of the partnership firm, a provision is made in the partnership deed for the payment of salary, bonus, commission and remuneration to the partners. If there is no provision in partnership act for the payment of salary, bonus, commission and remuneration to the partners.

(xi) Interest on loan given by partner to the firm : The rate of interest is to be mentioned in the partnership deed, when any partner has landed a loan to the firm. If no provision is made in the partnership deed, as per partnership act, 6% p.a. interest will be paid on the loan given by the partner to the firm. Interest on partners loan is treated as an expense of business and is debited to profit and loss account.

(xii) Goodwill : The computation to determine the value of goodwill at the time of the admission a new partner and at the time of retirement or death of a partner is also mentioned in the partnership deed.

(xiii) Admission or retirement of a partner : The provisions pertaining to admission of a
new partner and retirement or death of a partner is also mentioned in the partnership
deed.

(xiv) Dissolution of firm : In what circumstances firm will be dissolved ? What procedure will be adopted ? etc. are mentioned in the partnership deed.

(2)
Fluctuating capital accounts of partners : A method in which the opening balance of the capital account and the closing balance of the capital account of any partner is reported . fluctuated then it is known as Fluctuating or Temporary capital account method.

Under this method, to record all the transactions related to the partners, only one capital account is prepared in the books of the firm.
Under this method, balance of partners capital account has either debit or credit balance.
If there is credit balance in capital account, it would appear at the liability side of balance sheet and
If there is debit balance in capital account it would appear at the asset side of balance sheet.
The balances which are to be included in the partners capital account on the debit and
credit side, are as follows (specimen of account)

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Chapter 1 Introduction to Partnership

Class 12 Accounts Introduction to Partnership Text Book Questions and Answers

1. Select the correct answer for each questions :

Question 1.What is the interest on partners’ capital for a partner ?(A) An expense(B) Liability(C) Income(D) Loss

Question 2.Under which method, the interest on capital keeps on changing during the year due to the changes in the capital ?(A) Fluctuating capital accounts method(B) Fixed capital accounts method(C) Current accounts method(D) None of aboveAnswer

Question 3.In which account and on which side the share of partners’ share profit is recorded under the fluctuating capital account method ?(A) Debit to capital account(B) Credit to capital account(C) Debit to current account(D) Credit to current accountAnswer:(B) Credit to capital account

Question 4.At the end of the year where will you transfer drawings accounts in fixed capital account method ?(A) To capital account(B) To current account(C) To profit and loss account(D) To profit and loss appropriation account

Question 5.How would you consider the interest on debit balance of pratners’ current account for firm ?(A) An expense(B) Liability(C) Income(D) Loss

Question 6.What is the interest on drawings of partners for a partner ?(A) An expense(B) Liability(C) Income(D) LossAnswer:(A) An expense

Question 7.Debit balance of profit and loss appropriation account means ………………(A) Gross profit(B) Gross loss(C) Divisible profit(D) Divisible loss

Question 8.What percentage of interest will be paid, when no provision is made pertaining to interest on capital in the partnership deed ?(A) 6%(B) 9%(C) 12%(D) No interest

Question 9.What percentage of interest will be paid on the loan lent by the partner to the firm, when no such provision is made in the partnership deed ?(A) 6%(B) 9%(C) 12%(D) No interest

Question 10.The capital proportion of A, B and C is 3 : 2 : 1 respectively. The divisible profit is ₹ 66,000. What will be the amount of profit of C ?(A) ₹ 11,000(B) ₹ 22,000(C) ₹ 33,000(D) ₹ 66,000

2. Answer the following questions in one sentence :

Question 1.What is partnership ?Answer:Partnership is the relation between the persons who have agreed to share the profit of a business carried on by all or any one of them acting for all.

Question 3.What is a partnership deed for a firm ?Answer:The partnership deed is a administrative constitution of partnership firm, where all provisions pertaining to firms administration are included.

Question 4.Describe the objectives to prepare a partnership deed.Answer:Based on the written partnership deed, the solution of any misunderstanding or dispute in future can be obtained. On the basis of the provisions of the partnership deed.

Question 5.How are the administrative problems solved, when no written agreement is signed between the partners ?Answer:In absence of written agreement / partnership deed, administrative problems can be solved with the help of provisions of Partnership Act 1932.

Question 6.Describe state partners capital account methods of a partnership firm.Answer:There are two methods for partners capital account of a partnership firm.(i) Fluctuating Capital Account method(ii) Fixed Capital Account method.

Question 7.Profit of a partner is credited to which account under fixed capital account method ?Answer:Profit of a partner is credited to current account under fixed capital account method.

Question 8.Additional capital introduced by partner on permanent basis is credited to which account in the fixed capital account method ?Answer:Additional capital introduced by partner on permanent basis is credited to fixed capital account itself.

Question 9.The debit balance of current account of partners is shown on which side of balance sheet ?Answer:The debit balance of current account of partners is shown on Assets – Receivables side ofbalance sheet.

Question 10.Write a journal entry to transfer drawings account to the capital account, at the end of the year.Answer:Partners’ capital A/c Dr.To Partners’ drawings A/c(Being transfer drawings account amount to capital account at the end of the year)

Question 11.Profit and loss appropriation account is a part of which account ?Answer:Profit and loss appropriation account is a part of profit and loss account.

3. Answer the following questions in brief :

4. Answer the following questions to the point :

Question 1.Explain the meaning of partnership.Answer:As per Indian Partnership Act 1932, Section-4, ‘Partnership is the relation between the persons who have agreed to share the profit of a business carried on by all or any one of them acting for all.’

As per Luise Henny, ‘two or more persons who are competent to undertake a contract to earn profit from a legal business is termed as partnership.

Question 2.Describe the Characteristics of partnership.Answer:Following are the characteristics of partnership :(1) Creation by Contract: Partnership emerges through agreement. Partnership agreement can be in written or oral form. But written form of partnership deed is desirable and advisable.

(2) Profit Objective : Partnership firm takes place to earn and distribute profit. Distribution of profit or loss is done among partners in their predetermined proportion. If nothings is mentioned regarding profit-loss ratio, profit or loss is distributed among partners in equal ratio.

(3) Legal Business : Partnership firm is formed to do a legal business.

(4) Agent of each other : The business of partnership firm is run by all the partners or any one of them for all or more than one partner. Thus, we can say that each partner is an agent of each other.

(5) Number of partners : In the banking business minimum two and maximum ten while in general business firm minimum two and maximum twenty partners are allowed. Now a days, government restricted maximum number of partners in a firm to be 50 vide rule-10 of companies (Miscellaneous) Rules 2014.

(7) Ownership and management : Partners are owners of the business and they do the management of the business. The management of business is done either by all the partners or by one partner or by more than one partner.

(8) Legal status : In Indian Partnership Act 1932, partners rights, duties, laws, registration of the firm and other provisions related to partnership are shown.

Question 3.Describe the accounting provisions of partnership Act 1932, in absence of a partnership deed.Answer:The following provisions of partnership Act 1932, will be applicable if no partnership deed is prepared or no clarification is made in the partnership deed.

Question 4.What is profit-loss appropriation account ? Which items are disclosed in it ?Answer:Profit-loss appropriation account –

Question 5.Write Short Notes on :

(i) Details of partner : The information about name, address and other details of partners is included.

(ii) Details of firm : The details like name, address, objectives etc. of business firm are included here.

(iii) Type of business : The information about the type of business is also included here.

(iv) Commencement of partnership : The information about the commencement date of the partnership firm is included in the deed.

(v) Capital: The amount of capital introduced by each partner is mentioned in the deed. It is not compulsory for each partner to bring capital.

(vi) Interest on capital : On capital amount, whether interest is to be allowed or not is mentioned in this deed. If nothing is mentioned about the interest on capital, no interest on capital is allowed to partners.

(vii) Drawings : Maximum amount which can be withdrawn by a partner from a firm is also mentioned in the partnership deed.

(viii) Interest on drawings : On drawings amount whether interest is to be charged or not is mentioned in this deed. If nothing is mentioned about the interest on drawings no interest on drawings is to be charged from partners.

(ix) Profit-loss distribution ratio : In which proportion profit or loss of business will be distributed among the partners is provided in the partnership deed. If nothing is mentioned in partnership deed regarding profit-loss ratio, profit or loss will be equally distributed among partners.

(xii) Goodwill : The computation to determine the value of goodwill at the time of the admission a new partner and at the time of retirement or death of a partner is also mentioned in the partnership deed.

(xiii) Admission or retirement of a partner : The provisions pertaining to admission of anew partner and retirement or death of a partner is also mentioned in the partnershipdeed.

(xiv) Dissolution of firm : In what circumstances firm will be dissolved ? What procedure will be adopted ? etc. are mentioned in the partnership deed.

(2)Fluctuating capital accounts of partners : A method in which the opening balance of the capital account and the closing balance of the capital account of any partner is reported . fluctuated then it is known as Fluctuating or Temporary capital account method.

Question 5.Write Short Notes on :

(i) Details of partner : The information about name, address and other details of partners is included.

(ii) Details of firm : The details like name, address, objectives etc. of business firm are included here.

(iii) Type of business : The information about the type of business is also included here.

(iv) Commencement of partnership : The information about the commencement date of the partnership firm is included in the deed.

(v) Capital: The amount of capital introduced by each partner is mentioned in the deed. It is not compulsory for each partner to bring capital.

(vi) Interest on capital : On capital amount, whether interest is to be allowed or not is mentioned in this deed. If nothing is mentioned about the interest on capital, no interest on capital is allowed to partners.

(vii) Drawings : Maximum amount which can be withdrawn by a partner from a firm is also mentioned in the partnership deed.

(viii) Interest on drawings : On drawings amount whether interest is to be charged or not is mentioned in this deed. If nothing is mentioned about the interest on drawings no interest on drawings is to be charged from partners.

(ix) Profit-loss distribution ratio : In which proportion profit or loss of business will be distributed among the partners is provided in the partnership deed. If nothing is mentioned in partnership deed regarding profit-loss ratio, profit or loss will be equally distributed among partners.

(xii) Goodwill : The computation to determine the value of goodwill at the time of the admission a new partner and at the time of retirement or death of a partner is also mentioned in the partnership deed.

(xiii) Admission or retirement of a partner : The provisions pertaining to admission of anew partner and retirement or death of a partner is also mentioned in the partnershipdeed.

(xiv) Dissolution of firm : In what circumstances firm will be dissolved ? What procedure will be adopted ? etc. are mentioned in the partnership deed.

(2)Fluctuating capital accounts of partners : A method in which the opening balance of the capital account and the closing balance of the capital account of any partner is reported . fluctuated then it is known as Fluctuating or Temporary capital account method.

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Question 1.What is the interest on partners’ capital for a partner ?
(A) An expense
(B) Liability
(C) Income
(D) Loss

Question 2.Under which method, the interest on capital keeps on changing during the year due to the changes in the capital ?
(A) Fluctuating capital accounts method
(B) Fixed capital accounts method
(C) Current accounts method
(D) None of above
Answer

Question 3.In which account and on which side the share of partners’ share profit is recorded under the fluctuating capital account method ?
(A) Debit to capital account
(B) Credit to capital account
(C) Debit to current account
(D) Credit to current account
Answer:
(B) Credit to capital account

Question 4.At the end of the year where will you transfer drawings accounts in fixed capital account method ?
(A) To capital account
(B) To current account
(C) To profit and loss account
(D) To profit and loss appropriation account

Question 5.How would you consider the interest on debit balance of pratners’ current account for firm ?
(A) An expense
(B) Liability
(C) Income
(D) Loss

Question 6.What is the interest on drawings of partners for a partner ?
(A) An expense
(B) Liability
(C) Income
(D) Loss
Answer:
(A) An expense

Question 7.Debit balance of profit and loss appropriation account means ………………
(A) Gross profit
(B) Gross loss
(C) Divisible profit
(D) Divisible loss

Question 8.What percentage of interest will be paid, when no provision is made pertaining to interest on capital in the partnership deed ?
(A) 6%
(B) 9%
(C) 12%
(D) No interest

Question 9.What percentage of interest will be paid on the loan lent by the partner to the firm, when no such provision is made in the partnership deed ?
(A) 6%
(B) 9%
(C) 12%
(D) No interest

Question 10.The capital proportion of A, B and C is 3 : 2 : 1 respectively. The divisible profit is ₹ 66,000. What will be the amount of profit of C ?
(A) ₹ 11,000
(B) ₹ 22,000
(C) ₹ 33,000
(D) ₹ 66,000

Question 1.What is partnership ?
Answer:
Partnership is the relation between the persons who have agreed to share the profit of a business carried on by all or any one of them acting for all.

Question 3.What is a partnership deed for a firm ?
Answer:
The partnership deed is a administrative constitution of partnership firm, where all provisions pertaining to firms administration are included.

Question 4.Describe the objectives to prepare a partnership deed.
Answer:
Based on the written partnership deed, the solution of any misunderstanding or dispute in future can be obtained. On the basis of the provisions of the partnership deed.

Question 5.How are the administrative problems solved, when no written agreement is signed between the partners ?
Answer:
In absence of written agreement / partnership deed, administrative problems can be solved with the help of provisions of Partnership Act 1932.

Question 6.Describe state partners capital account methods of a partnership firm.
Answer:
There are two methods for partners capital account of a partnership firm.
(i) Fluctuating Capital Account method
(ii) Fixed Capital Account method.

Question 7.Profit of a partner is credited to which account under fixed capital account method ?
Answer:
Profit of a partner is credited to current account under fixed capital account method.

Question 8.Additional capital introduced by partner on permanent basis is credited to which account in the fixed capital account method ?
Answer:
Additional capital introduced by partner on permanent basis is credited to fixed capital account itself.

Question 9.The debit balance of current account of partners is shown on which side of balance sheet ?
Answer:
The debit balance of current account of partners is shown on Assets – Receivables side of
balance sheet.

Question 10.Write a journal entry to transfer drawings account to the capital account, at the end of the year.
Answer:
Partners’ capital A/c Dr.
To Partners’ drawings A/c
(Being transfer drawings account amount to capital account at the end of the year)

Question 11.Profit and loss appropriation account is a part of which account ?
Answer:
Profit and loss appropriation account is a part of profit and loss account.

Question 1.Explain the meaning of partnership.
Answer:
As per Indian Partnership Act 1932, Section-4, ‘Partnership is the relation between the persons who have agreed to share the profit of a business carried on by all or any one of them acting for all.’

Question 2.Describe the Characteristics of partnership.
Answer:
Following are the characteristics of partnership :
(1) Creation by Contract: Partnership emerges through agreement. Partnership agreement can be in written or oral form. But written form of partnership deed is desirable and advisable.

Question 3.Describe the accounting provisions of partnership Act 1932, in absence of a partnership deed.
Answer:
The following provisions of partnership Act 1932, will be applicable if no partnership deed is prepared or no clarification is made in the partnership deed.

Question 4.What is profit-loss appropriation account ? Which items are disclosed in it ?
Answer:
Profit-loss appropriation account –

(xiii) Admission or retirement of a partner : The provisions pertaining to admission of a
new partner and retirement or death of a partner is also mentioned in the partnership
deed.

(2)
Fluctuating capital accounts of partners : A method in which the opening balance of the capital account and the closing balance of the capital account of any partner is reported . fluctuated then it is known as Fluctuating or Temporary capital account method.

(xiii) Admission or retirement of a partner : The provisions pertaining to admission of a
new partner and retirement or death of a partner is also mentioned in the partnership
deed.

(2)
Fluctuating capital accounts of partners : A method in which the opening balance of the capital account and the closing balance of the capital account of any partner is reported . fluctuated then it is known as Fluctuating or Temporary capital account method.