Law Legal Studies · Commerce Accountancy

Partnership and Business Law

1,019 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 organization of commerce and management ownership structures - sole proprietorship and joint hindu family business hindu undivided family business introduction to huf joint hindu family business

In a HUF business, in the event of death of any of the co-parcener, his wife can claim share of profit.

  1. False

  2. True

  3. Partly true

  4. None of above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In a HUF business, in the event of death of any of the coparcener, his wife can claim share of profit-this is  a true statement. A Hindu Undivided Family is an extended family arrangement prevalent among Hindus of the Indian subcontinent. It came into existence as per Hindu Inheritance Laws of India.

Multiple choice organization of commerce and management ownership structures - sole proprietorship and joint hindu family business hindu undivided family business introduction to huf joint hindu family business

In a HUF business, the liability of the karta is _______________.

  1. Limited to the extent of share of co-parceners

  2. Limited to the extent as may be determined by relatives

  3. Unlimited

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

In a HUF business, the liability of the karta is unlimited. The affairs of the business are managed by the head of the family, known as karta. In a Hindu Undivided Family business only the male members get a share in the business by virtue of their being part of the family. A Hindu Undivided Family is an extended family arrangement prevalent among Hindus of the Indian subcontinent. It came into existence as per Hindu Inheritance Laws of India.

Multiple choice organization of commerce and management ownership structures - sole proprietorship and joint hindu family business hindu undivided family business introduction to huf joint hindu family business

The liability of each member of the HUF business is _____________.

  1. Limited to the extent of share of KART

  2. Limited to the extent of his share in the business

  3. Unlimited

  4. Limited to the extent as may be determined by relatives
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The liability of each member of the HUF business is limited to the extent of his share in the business. In a Hindu Undivided Family business only the male members get a share in the business by virtue of their being part of the family. A Hindu Undivided Family is an extended family arrangement prevalent among Hindus of the Indian subcontinent. It came into existence as per Hindu Inheritance Laws of India.

Multiple choice organization of commerce and management ownership structures - sole proprietorship and joint hindu family business hindu undivided family business introduction to huf joint hindu family business

Which of the following can be treated as advantage of HUF form of business?

  1. The liability of the co-parceners is limited, except for that of karta which makes the karta to manage the business in the most efficient manner.

  2. A HUF business is not affected by the insolvency or death of any member including that of karta.

  3. Both (a) and [b)

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

In a Hindu Undivided Family business only the male members get a share in the business by virtue of their being part of the family. A Hindu Undivided Family is an extended family arrangement prevalent among Hindus of the Indian subcontinent. It came into existence as per Hindu Inheritance Laws of India. Following can be treated as advantage of HUF form of business:

a) The liability of the co-parceners is limited, except for that of karta which makes the karta to manage the business in the most efficient manner.
b) A HUF business is not affected by the insolvency or death of any member including that of karta.

Multiple choice organization of commerce and management ownership structures - cooperative society features, merits and demerits, formation and management of a cooperative society meaning and features of cooperative society cooperative organisation

Which of the following is a voluntary association of persons who work together to promote their economic interest?

  1. Sole proprietorship

  2. Company

  3. Co-partnership

  4. Co-operative
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A Co-operative Society is an artificial voluntary association of people who work together to promote their economic interest and in order to achieve common goals. 

These society are incorporated with some social motives and they often have separate legal body and common seal.

Multiple choice organization of commerce and management ownership structures - cooperative society features, merits and demerits, formation and management of a cooperative society meaning and features of cooperative society cooperative organisation

Statement $1$:
The liability of members of co-operative society remains limited to the extent of capital contributed by them.
Statement $2$:
The members of co-operative society are personally liable of co-operative society.
Select the correct answer from the options given below.

  1. Both $1$ and $2$ are true
  2. $2$ is true but $1$ is false
  3. $1$ is true but $2$ is false
  4. Both $1$ and $2$ are false
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A Co-operative Society is an artificial voluntary association of people who work together to promote their economic interest and in order to achieve common goals. The liability of the members of the cooperative societies are limited to the extent of their capital contribution in the society and in case of any insolvency no creditors can claim the personal assets of its members. 

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 event of death of partner, the amount of General Reserve is transferred to partner's capital Accounts in ______________ .

  1. The new profit-sharing ratio.

  2. The old profit-sharing ratio.

  3. The capital ratio.

  4. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The amount of general reserve is transferred to the capital accounts of all the partners in their old profit sharing ratio. This is done to give the deceased partner's nominee the required amount of share in profits of the firm. So, All Partners' Capital Accounts are credited with their respective shares.

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

If the firm has sufficient cash to pay off the amount due to the deceased partner, it can pay the amount immediately, this is known as ___________.

  1. Lump sum payment method

  2. Instalment payment method

  3. Annuity method

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Business of a partnership firm may not come to an end due to the death of a partner. Other partners may shall continue to run the business of the firm. Readjustments takes place in case of death of a partner likewise the case of retirement of a partner. Whenever, a partner dies the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange for the amount to b paid to discharge the claim of deceased partners. Assets and liabilities are revalued, value of goodwill is raised and surrender value of joint life policy, if any, is taken into account. Revaluation of profit and reserves are transferred to capital or current accounts of partners. Lastly, final amount due to the retiring partner is determined and discharged.

There are two ways in which amount due to deceased partner is discharged:

1. Lump sum payment method - In this, if the firm has sufficient cash to pay off the amount due to the deceased partner, it pay the amount immediately, this is known as lump sum payment method.

2. Installment payment method - In this, if the firm  does not have sufficient cash to pay off the amount due to deceased partner, it pay the amount in installments, this is known as installment payment method.

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 which of the following events public notice is not required?

  1. Death of a partner.

  2. Insolvency of a partner.

  3. Retirement of a sleeping partner.

  4. All the the above.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Public notice is required to be given at the time of retirement of a partner otherwise retiring partner may not be discharged from his liability towards third party.
There are some cases when public notice is not required:
1. On death of a partner - the estate of a deceased partner or the legal representatives of a deceased partner cannot be held liable for any act of the firm, performed or done after his death, even if partnership business is carried on by the surviving partners in the old name of the firm. death of any partner itself is a notice.
2. Insolvency of a partner - When a partner is declared as insolvent, his liability is terminated after his insolvency. When a person ceases to be a partner, from the date of in solvency, he and his estate is no longer held to be liable for any act of the partnership firm done after his insolvency whether the notice of his insolvency has been given or not.
3. Dormant or sleeping partner - As dormant partner does not take any part in the conduct or management of the firm and his existence as a partner is not reflected by the name of the firm, he is not known to the person concerned retires from a firm, no public notice is necessary to terminate his liability.
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