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 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.
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.
For firms acts after retirement, a retiring partner ________. 

  1. is not liable to third party even if no public notice is given of his retirement

  2. is not liable to third party who deals with the firm without knowing. that he was a partner even if no public notice is given of his retirement

  3. continues to be liable to every third party (whether or not having knowledge that he was a partner) if no public notice in give

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

Liability of a retired partner - A retired partner is held liable to the debts of his firm and for all the acts of the firm done before and upto the date of his retirement. However, a retiring partner may be discharged from his liabilty to any third party for the acts of his firm done before his retirement by entering into agreement with such third party and partners of the reconstituted firm. Such agreement may be implied by a course of dealing between such third party and the reconstituted firm after he had knowledge of retirement. Thus a third party should recognise the reconstituted firm as its debtor in order to free the retiring partner from his liability.

If a partner retires without giving necessary public notice, he continues to be liable as a partner by holding out. Of course, if a dormant partner retires without giving any public notice, he cannot be held liable as a partner by holding out. A retired partner is not liable to third party who deals with the firm without knowing that he was a partner even if no public notice is given of his retrement.

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.
Unless otherwise agreed, a retiring partner can _______. 

  1. carry on competing business

  2. use the firms name

  3. represent himself as carrying on firms business

  4. solicit the old customers
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
Rights of an outgoing partner to carry on competing business - An outgoing partner may carry on a business competing with that of the firm and he may advertise such business. But subject to contract to the contrary may not
1. Use the firm name,
2. Represents himself as carrying on the business of the firm,
3 Solicit the custom of persons who were dealing with the firm before he ceased to be a 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

At the time of death of partner following entries can be made:

  1. Transfer all balance from capital account of partner to loan account.

  2. Pay cash immediately from his capital account.

  3. Transfer all balance from capital account to partners executor's accounts.

  4. Both (B) & (C).
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

At the death of a partner, all of the assets and liabilities have to be revalued and the resultant profit or loss has to be transferred to capital accounts of all partners including the deceased partner. Goodwill is raised and the joint life policy, if any, is taken into consideration. Lastly, final amount due to the deceased partner is determined and it should be credited to his Executor's Account.

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

The executors of the deceased partner are entitled to a share of profit earned by the firm from the date of last balance sheet and to the date of death. Which of the entry will be passed for this purpose?
(Name of the deceased partner was Mr. X) 

  1. Profit & Loss Suspense A / C Dr.

    To X A / C

  2. X A / C Dr.

    To Profit & Loss A / C

  3. X A / C Dr.

    To Memorandum Revaluation A / C

  4. X A / C Dr.

    To Profit & Loss Suspense A / C
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The share of profit for a deceased partner from the last balance sheet date to the date of death is calculated and debited to the Profit and Loss Suspense account, with the credit going to the deceased partner's capital account.

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 a partner dies, then JLP will be reckoned at ________.

  1. surrender value

  2. maturity value

  3. policy value

  4. none of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
On the death of a partner, assets and liabilities are revalued and the resultant profit and loss has  to be transferred to the capital accounts of the partners including the deceased partner, value of goodwill is raised and the maturity value of joint life policy is taken into account. Revaluation profit and reserves are transferred to capital or current accounts of partners. After ascertaining the amount due to the deceased partner, it should be credited to his executor's account.
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 the firm gets dissolved due to the retirement of one the partners then what amount of JLP will be credited in partner's capital A/c?

  1. Maturity Value.

  2. Surrender Value.

  3. Policy Value.

  4. None of these.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
At the time of retirement of a partner, readjustments takes place. Whenever a partner retires, the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange for the amount to be paid to discharge the claims of retiring partners. Assets and liabilities are revalued, value of goodwill is raised and surrender value of joint life policy 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.