Law Legal Studies · Commerce Accountancy

Partnership and Business Law

1,007 Questions

Test your knowledge of partnership regulations and business law with these practice questions. The topics include the rights of minor partners, firm dissolution, retirement rules, and public notices. This material is crucial for law exams and legal studies.

Rights of minor partnersPublic notice requirementsFirm dissolution rulesPartner retirementHolding out partner principlePartnership deed provisions

Partnership and Business Law Questions

Multiple choice book keeping and accountancy accounting for retirement and death of partner reconstitution of partnership (retirement of partner) accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Select the false statement.

  1. On death of a partner his position is taken over by his heirs immediately.

  2. Minor partner has no right to see secret books/records.

  3. In a trading firm a partner has implied authority to borrow money on the credit of the firm.

  4. A partner has no authority to enter partnership with other firm on behalf of the firm.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Death of a partner dissolves the partnership and the rights of the representatives of the deceased partner would depend on the provisions of the partnership deed. Usually, the surviving partners carry on the business, purchasing the share of the deceased partner after determining the among due to him and then treating it as a loan to the firm. There are no special problems in death except that death may occur at any time of the year; this would mean that the executors of the deceased partner would be entitled to the deceased partner’s share of profits arising after the last closing up of accounts to the date of accounts death.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Death of a partner has the effect of _________.

  1. dissolution of the firm

  2. continuance of the business of the firm

  3. his legal heir joining the firm
  4. shutting down the business for $15$ days
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Retirement or death of a partner also leads to reconstitution of a partnership firm. On the retirement or death of a partner, the existing partnership deed comes to an end and in its place, a new partnership deed needs to be framed whereby, the remaining partners continue to do their business on changed terms and conditions.

Business of a partnership firm may not come to an end due to the death of a partner. Other partners shall continue to run the business of the firm. For the purpose to run the business on partner's death the old deed will dissolve and the new deed will come into existence with new profit sharing ratio and other terms and conditions.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

All of the following except one is the method of recording joint life policy ______________.

  1. premium paid charged to revenue

  2. JLP Account maintained at the surrender value

  3. JLP Account maintained at the surrender value along with the Reserve

  4. Surrender value distributed among the partners in the profit sharing ratio
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The surrender value at the time of the death of a partner is distributed among the remaining partners and the legal representative of the deceased partner.

Multiple choice book keeping and accountancy accounting for retirement and death of partner reconstitution of partnership (retirement of partner) accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

In the absence of a partnership deed, the allowable rate of interest on a partners loan account will be:

  1. $4$% p.a.
  2. $5$% p.a.
  3. $6$% p.a.
  4. $7.5$% p.a.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

It is not compulsory 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 there 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 a partner has provided any Loan to the firm, he would be paid Interest at the rate 6% p.a. This interest on loan 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.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

On the death of a partner, the amount of Join Life Policy is credited to the Capital Account of _____________.

  1. Only the deceased partner

  2. All partners including the deceased partner

  3. Remaining partners, in the new profit sharing ratio

  4. Remaining partners, in the old profit sharing ratio
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The amount received from a Joint Life Policy on the death of a partner is a gain for the firm, so it is distributed among all partners in their profit-sharing ratio.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

In the absence of proper agreement, representative of the deceased partner is entitled to the dead partner's share in ____________.

  1. Profits till date, good will, joint life policy, share in revalued assets and liabilities.

  2. Capital, good will, joint life policy, interest on capital, share in revalued assets and liabilities.

  3. Capital, profits till date, good will, interest on capital, share in revalued assets and liabilities.

  4. Capital, profits till date, good will, joint life policy, share in revalued assets and liabilities.
Reveal answer Fill a bubble to check yourself
B Correct answer
Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

A partner retires but the business is still being carried on 

  1. Profit sharing between the remaining partners will remain same

  2. Share proportion remains same

  3. Share proportion changes

  4. Both a & c
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When a partner retires, the remaining partners' profit-sharing ratio must change to account for the redistribution of the retiring partner's share.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Choose the correct answers from the alternatives given.
Public notice of retirement must be given ________. 

  1. only by the retiring partner only

  2. only by any partner other than retiring partner

  3. by retiring partner or any of the other partners

  4. none of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

If a partner retires, without giving public notice, he  continues to be liable as a partner by holding out. If a Dormant partner retires without giving any public notice, he cannot be held liable as a partner by holding out. If no notice of retirement of a partner is given to the third parties and, if they continue to supply goods or funds to the reconstituted firm, they can either hold th old firm or the new firm liable.

Public notice regarding the retirement of the partner may be given by the retired partner or by other partner of the reconstituted firm as per section 32 (4)  of the Indian Partnership Act, 1932.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Choose the correct answers from the alternatives given.
A partner may retire from an existing firm ________. 

  1. with consent of all partners

  2. as per express agreement

  3. by written notice in partnership at will

  4. all of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A partner can retire with the consent of all partners, per an express agreement, or by giving notice if the partnership is at will.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Choose the correct answers from the alternatives given.
In case of death of a partner ________. 

  1. the firm is dissolved unless otherwise agreed

  2. the estate of deceased partner is liable for any act of the firm after the date of his death if no public notice is given

  3. both (A) & (B)

  4. none of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
A partnership firm can be dissolved on happening of certain contingencies. Such contingencies are made clear in section 42, which laid down that subject to contract between the partners, a firm is dissolved
1. if constituted for a fixed term, by the expiry of that term;
2. if constituted to carry out one or more adventures or undertakings, by the completion thereof;
3. by the death of a partner; and
4. by the adjudication of a partner as an insolvent.
However, it can be provided in the partnership agreement that the firm will not be dissolved in any of the circumstances mentioned above and if such provision is made in the agreement that is considered valid.
Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Choose the correct answers from the alternatives given.
A partner can retire on __________. 

  1. reaching the age of superannuation

  2. on the balance in the capital account reaching a certain amount

  3. in accordance with the Partnership Deed

  4. on the condition of his nominee becoming a partner
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In accordance with the Partnership Deed, a partner is said to retire when other partners continue to carry on the partnership business and that partner who retires ceases to be a partner. There are three modes of retirement of a partner, which are as follows:

1. Any partner may retire at any time with the consent of all partners.
2. When the partnership deed expressly provides for the retirement of a partner; a partner may retire according to the terms of agreement between the partners.
3. When the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Choose the correct answers from the alternatives given.
In case of a partnership at will, a partner may retire by giving ________. 

  1. an oral notice to that effect to any of the working partners

  2. an oral notice to that effect to all other partners

  3. a written notice to that effect to all other partners

  4. a written notice to that effect to any of the working partners

  5. a written notice to that effect to the registrar of firms
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In a partnership, a partner may retire: With the consent of all the partners, In accordance with an express agreement by the partners, or. The partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Choose the correct answers from the alternatives given.
The heir of the deceased partner _______. 

  1. has a right to become a partner in the firm of the deceased partner

  2. does not have a right to become a partner in the firm of the deceased partner

  3. can become a partner in the firm of the deceased partner only if the surviving partners give their consent in this regard

  4. both (b) & (C)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The heir of a deceased partner does not have an automatic right to become a partner; they can only join if the surviving partners consent.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

Which of these statements is true?

  1. Joint life policy is taken by the partners in order to provide funds at the time of retirement /death of any partner.

  2. Joint life policy reserve account is created to bring down the policy account to surrender value.

  3. Indian Partnership Act prohibits payment of any share of profit to a retiring partner if account are not settled.

  4. Retiring partner pays for his share of goodwill to the remaining partner.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Joint life policy is taken by the partners in order to provide funds at the time of retirement /death of any partner - True

A Joint Life Policy (JLP) is an insurance policy which is taken out by the partnership firm on the joint lives of all partners. The amount of policy is payable by the insurance company either on the death or maturity of policy, whichever is earlier. The firm pays annual premium to the insurer against the policy. Joint Life Policy is taken by the partners so that to avoid the financial hardship they may face at time of payment to retiring or deceased partner.

Multiple choice book keeping and accountancy reconstitution of partnership (retirement of partner) accounting for retirement and death of partner accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

If one of the partner of a partnership firm comprising 2 partners dies, then _________.

  1. firm will dissolve

  2. partnership profits will change, no effect on firm

  3. both (A) & (B)

  4. none of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
When a partnership firm ceases to exist, the partnership firm is said to be dissolved. "The dissolution of partnership between all partners of a firm is called the dissolution of the firm." There is a difference between dissolution of partnership and dissolution of firm. dissolution of partnership involves a change in a relationship of partners. When one or more partners cease to be the partners of the firm because of one or the other reason and other partner continue the partnership business, it is nothing but the dissolution of partnership and not of the firm. But if there are only two partners in a partnership and one of the partner dies, firm will dissolve as the subject matter of partnership i.e., basic requirement of partnership of having at least 2 members does not exist.