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 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.
Multiple choice organization of commerce and management markets and marketing meaning, nature and importance of services introduction to services nature and types of services

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

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

  2. An inefficient karta can do harm to the business.

  3. The continuity of business is always under threat. It may be due to a small rift within the family and if a co-parcener asks for a partition the business is closed.

  4. Since the karta has absolute freedom to manage the business, there is scope for him to misuse it for his personal gains.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Despite having various advantages, the HUF form of business has disadvantages as well. One of them could be misuse of power. Since the karta has absolute freedom to manage the business, there is a scope for him to misuse it for his personal gains. An inefficient karta can do harm than good to the business.

Multiple choice book keeping and accountancy bills of exchange renewal of the bill retirement and renewal of a bill accounting treatment of bill transaction

Retiring or outgoing partner:

  1. To be liable for firms liabilities.

  2. Not liable for any liabilities of the firm.

  3. Is liable for obligation incurred before his retirement.

  4. Is liable for obligations incurred with his consent only.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A retiring partner remains liable for all debts and obligations incurred by the firm up to the date of their retirement. They are not liable for debts incurred after their departure.

Multiple choice elements of accounts accounts from incomplete records stakeholders and their information requirements ascertainment of profit and loss calculation of profit or loss under single entry system of accounting and statement of affairs accounts from incomplete records - single entry system

The expression 'firm' would include a _________________.

  1. Company

  2. LLP

  3. HUF

  4. AOP
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Under various legal frameworks, the definition of a 'firm' is often expanded to include Limited Liability Partnerships (LLP) for tax and regulatory purposes.

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Match List I (Provision of Partnership Act) with List II (Matters with which the provision are related) and select the correct answer using the codes given below the lists:

List I List II
Interest must be allowed at 6% p.a Drawings of Partners
No interest shall be allowed Net loss of the firm for an accounting year
No interest shall be charged Capitals contributed by the partners
Must be shared equally by all the partners unless otherwise agreed Loan given by a partner to the firm

  1. A - 1, B-3, C-2, D-4

  2. A - 4, B-3, C-2, D-1

  3. A - 3, B-2, C-4, D-1

  4. A - 4, B-3, C-1, D-2
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to the Indian Partnership Act: Interest on loan is 6% (D-1), net loss is shared equally (A-4), no interest on capital (B-3), and no interest on drawings (C-2).

Multiple choice elements of business sole trade meaning, features and merits of sole proprietorship sole proprietorship - meaning & features formation, characteristics, merits & demerits and objectives of sole proprietorship

Which of the following is not characteristic of LLP?

  1. A legal entity having perpetual succession, separate from its partners.

  2. The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners shall be governed by an agreement between partners

  3. Each partner is an equal member in a LLP company.

  4. Easy to establish than sole proprietorship.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

LLPs are generally considered easier to establish than traditional companies but are more complex to establish than a sole proprietorship, which requires minimal legal formality. The other options correctly describe legal characteristics of an LLP.

Multiple choice elements of business sole trade meaning, features and merits of sole proprietorship sole proprietorship - meaning & features formation, characteristics, merits & demerits and objectives of sole proprietorship

Characteristics of sole proprietorship form of business is/ are
$(1)$ Single owner
$(2)$ Unlimited liability
$(3)$ Control by partner
$(4)$ No sharing of profit and loss
Select the correct answer from the options given below.

  1. $(1)$ and $(4)$ only
  2. $(2), (3), (4)$
  3. $(2)$ and $(1)$ only
  4. $(4), (2)$ and $(1)$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Sole proprietorships are characterized by a single owner (1), unlimited liability (2), and the fact that the owner keeps all profits and bears all losses (4). Control is by the owner, not a partner (3).

Multiple choice elements of business sole trade meaning, features and merits of sole proprietorship sole proprietorship - meaning & features formation, characteristics, merits & demerits and objectives of sole proprietorship

In case of sole proprietorship there is a _______ between _________.

  1. Direct link, effort and reward

  2. Indirect link; Profit and loss

  3. Direct link; Profit and loss

  4. Indirect link; effort and reward
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In a sole proprietorship, the owner is the sole recipient of profits and the sole bearer of losses, creating a direct link between their personal effort and the financial reward.

Multiple choice elements of business sole trade meaning, features and merits of sole proprietorship sole proprietorship - meaning & features formation, characteristics, merits & demerits and objectives of sole proprietorship

_______ do not have to consult with other individuals to make decisions for the business, which allows them to respond quickly to changes in the marketplace.

  1. Partners

  2. Customers

  3. Managers

  4. Sole traders
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Sole traders do not have to consult with other individuals to make decisions for the business, which allows them to respond quickly to changes in the marketplace. Sole trader do not have to file a business tax return on a company's profits and losses.
 Sole trader starts his/her business with an objective of earning independent livelihood using his/her skills. Sole traders operate mostly on a small-scale basis and their number is large. Sole trader can be referred as the single individual who takes all initiatives and run the business.