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 business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

On the dissolution of a firm, if a partner has a debit balance in his capital account then:

  1. He shall not share in the profit/loss on dissolution

  2. He need not bring cash

  3. He is required to bring in enough cash to clear off his debit balance

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

At the time of dissolution, the accounts of partners are settled. Accounts are settled by paying them the amount of capital due to them. So, if a partner has debit balance in his capital he has to bring the amount to clear off his debit balance. Suppose. there are three partners, A, B and C. Capital of partners at the time of dissolution are A Rs.30000(CR.), B Rs.10000(CR.), and C Rs. 5000(DR.). In this , Partner C will bring Rs. 5000 to clear off his balance due to him.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

L, M, N and O are equal partners. L, M and O die together. This accident results in:

  1. Dissolution of partnership

  2. Dissolution of firm

  3. Dissolution of firm as well as dissolution of partnership

  4. Neither dissolution of firm nor dissolution of partnership
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Dissolution of partnership means termination of old partnership agreement and a reconstruction of the firm due to admission ,retirement and death. Dissolution of partnership firm means that the firm closes down its business  and comes to an end. In this case because of death partnership dissolved. 

For partnership two or more than two partners needed but in this only one partner is alive. so it resulted in dissolution of partnership firm also.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

In India, audit of Partnership firm is:

  1. Compulsory

  2. Optional

  3. Statutory by law

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

In India, no compulsory audit is provided by Indian Partnership Act, 1932. As per the Income Tax Act , 1961, Tax audit of Partnership Firm is mandatory if the turnover exceeds One Crore Rupees in case of business and Rupees Twenty Five lakhs in case of Profession.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Where a partner of a firm has become of unsound mind, the suit for dissolution may be brought by:

  1. Himself

  2. A friend of that partner

  3. A relative of that partner

  4. Both B and C
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Section 44 of the Indian Partnership Act states that when a partner becomes of unsound mind,suit for dissolution can be brought by other partner, a friend of that partner and by a relative of that partner. Unsoundness of a partner can be ground for dissolution of firm. 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

A firm is dissolved when the business of the firm becomes ________.

  1. Illegal

  2. legal

  3. Partially illegal

  4. Partially legal
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Dissolution of partnership firm may take place without the intervention of court or by the order of a court, in any of the specified ways. It may be noted that dissolution of the firm necessarily brings in dissolution of partnership. Compulsory Dissolution is one of the way because of which dissolution of firm may take place. A firm is dissolved compulsorily in the following case:

(a) when all the partners or all but one partner, become insolvent, rendering them incompetent to sign a contract;
(b) when the business of the firm becomes illegal; and 
(c) when some event has taken place which makes it unlawful for the partners to carry on the business of the firm in partnership, e.g., when a partner who is a citizen of a country becomes an alien enemy because of the declaration of war with his country and India.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Subject to contract between the partners, a firm is dissolved by the _______ of a partner.

  1. Existence

  2. Death

  3. Retirement

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

Dissolution of partnership firm may take place without the intervention of court or by the order of a court, in any of the specified ways. It may be noted that dissolution of the firm necessarily brings in dissolution of the partnership.

On the happening of certain contingencies is one way which results in dissolution of firm. Subject to contract between the partners, a firm is dissolved:
(a) if constituted for a fixed term, by the expiry of that term; 
(b) if constituted to carry out one or more ventures, by the completion thereof;
(c) by the death of a partner; 
(d) by the adjudication of a partner as an insolvent.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

In case of partnership at will, the firm may be dissolved if any ______ of the partners give a notice in writing to the other partners, signifying his intention of seeking dissolution of the firm.

  1. One

  2. Two

  3. All

  4. Some
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Dissolution of a partnership firm may take place without the intervention of court or by the order of a court, in any of the ways specified. It may be noted that dissolution of the firm necessarily brings in dissolution of the partnership. 

Dissolution by notice is one of the ways for dissolution of a firm. In case of partnership at will, the firm may be dissolved if any one of the partner gives a notice in writing to the other partners, signifying his intention of seeking dissolution of the firm.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

In dissolution of partnership, _________ account is created, whereas _________ account is prepared in dissolution of firm.

  1. Revaluation, Realization

  2. Realization, Revaluation

  3. Revaluation, Memorandum

  4. Memorandum, Realization
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

If a partner is retiring or any new partner is admitted, its called dissolution of partnership. In such situation all the assets and liabilities are revalued for which a revaluation account is opened. The differences of the original value and revalued amount are transferred to Revaluation Account. Surplus or deficit on revaluation is transferred to the partners capital account.

If the firm is dissolving, all the assets and liabilities accounts are transferred to Realization Account. Amount received or paid against the assets and liabilities are debited/credited to the realization account.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

A partnership comes to an end due to ________. 

  1. Insolvency of all partners

  2. Death of a partner

  3. By notice dissolution given by a partner

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

Partnership are come to end various reasons such as partners are insolvent , firm  suffer loss from a long time and  end of partnership deed then also partnership come to end 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

In dissolution of partnership, business ________ whereas in dissolution of firm, the business is ________.

  1. Closes, Continued

  2. Partly closes, Continued

  3. Continues, Closed

  4. Continues, Partly closed
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

According to Section 39 of the partnership act 1932, the dissolution of partnership between all the partners  of a firm is called dissolution of the firm. 

The act that recognizes the difference in the breaking of relationship between all the partners is termed as the dissolution of partnership firm.
There are various differences between dissolution of partnership and dissolution of firm. Economic relationship is one, where the economic relationship between the partners continues though in a changed form in dissolution of partnership, whereas, economic relationship between the partners comes to an end in dissolution of firm.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Dissolution of the partnership is _________ in nature, as it is dissolved by mutual agreement. Conversely, a firm is dissolved either ________________.

  1. Voluntary, Voluntarily or Temporarily

  2. Temporary, Voluntarily or Compulsorily

  3. Voluntary, Voluntarily or Compulsorily

  4. Unchanged, Voluntarily or Compulsorily
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A partnership gets terminated in case of admission, retirement, death etc. of a partner. This does not necessarily involve dissolution of firm. 

The dissolution of a firm implies the discontinuance of partnership business and separation of economic relations between the partners. In case of a dissolution of a firm, the firm closes its business altogether and realizes all its assets and pays all its liabilities. 
There are various differences between dissolution of partnership and dissolution of firm. Under dissolution of partnership, court does not intervene because partnership is dissolved by mutual agreement i.e. voluntary in nature, while in dissolution of firm it can be dissolved by the court's order i.e either voluntarily or compulsorily.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Under section $44$ of the Partnership Act, which of these cannot be a ground for dissolution of a firm.

  1. Continued losses

  2. Persistent breach of agreement

  3. Just and Equitable

  4. Insolvency of any partner
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to Section 44, continued losses, willfully or persistent breach of contract and any other reason that court may find just and equitable can be ground for dissolution of firm. 
Under section 41 of Indian Partnership Act, insolvency becomes basis of dissolution of firm in case all the partners become insolvent or all except one partner become insolvent. Insolvency of one partner does not become ground for dissolution of firm.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Which of these can be treated as just and equitable ground for dissolution of a partnership firm under the Partnership Act?

  1. Loss of mutual confidence

  2. Dead lock amongst the partners

  3. Both

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

Partnership completely depends on trust and good faith. Partnership can not continue without trust. Dead lock situation is that situation in which no agreement can be made because no party is willing to give in and a partnership is a contractual agreement. If no contract can be made no partnership can be made. So these are treated as just and equitable ground for dissolution.

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Does insolvency of a partner always result in dissolution of a firm?

  1. Yes

  2. Not at all

  3. Not if partnership deed does not so provide

  4. Not if exemption sought from registrar of firms
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Partnership Deed contain all the conditions and legalities of partnership. It provide a guiding base for all future activities. So if partnership deed provides that insolvency of partner does not result in dissolution of firm then it will only be dissolution of partnership not the dissolution of partnership firm. Remaining partner can continue its operations. 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

A partnership firm can be dissolved except by __________.

  1. By mutual consent

  2. By agreement

  3. By court notice

  4. By public auction
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A public auction is an auction held on behalf of a government in which the property to be auctioned is owned by government. But in case of partnership, partnership firm is not owned by government. A partnership firm can be dissolved by mutual consent, by agreement, by court notice.