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 joint ventures private, public and global enterprises public sector, private sector and global enterprises organisation of commerce and management business studies

When two businesses enter into a joint venture, one of the parties benefits from the others goodwill which has already been established in the market.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When two businesses enter into a joint venture one of the parties benefits from the other's goodwill which has already been established in the market. A lot of investment is saved in this process of using the established brand name.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Which of the following statements is true in case of Joint Venture?

  1. Only one venturer bears the risk.

  2. Only one venturer can sell the goods.

  3. Only one venturer can purchase the goods.

  4. In joint venture, provisions of the Partnership Act apply
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Option D is the correct one.
Any person competent to contract, a company, partnership firm or a corporation can enter into a Joint Venture in India. It can be in the form of partnership firm, corporation or any other business entity which the parties may choose. A Joint Venture can be formed for any lawful business purpose.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

In the absence of specific provision in the partnership deed rate interest on capital of the partners would be allowed ______ .

  1. 8%

  2. 10%

  3. 6%

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

Where there is neither partnership deed nor express agreementv or partnership deed is there but silent on any matter, then the relevant provisions of the Indian partnership act, 1932, would be applicale. As per these provisions no interest is to be allowed on capital.

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

In the absence of an agreement to the contrary, the partners are :

  1. Entitled to $6\%$ interest on their capitals only when there are profits
  2. Entitled to $9\%$ interest on their capitals only when there are no profits

  3. Entitled to interest on capital at the bank rate only when there are profits

  4. Not entitled to any interest on their capitals
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Interest on capital is a mode of appropriation of profits to partners. Interest on capital is an income on the capital contributed by the partners. Interest on capital is calculated on time basis having regard to the introduction of fresh capital and withdrawal of capital.

Interest on capital can only be provided if there is a provision to that effect in the partnership deed. If the partnership deed is silent, then interest on capital is not allowed.

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

Interest on capital will be paid to the partners if provided for in the agreement but only from following _______________.

  1. Profits

  2. Reserves

  3. Accumulated Profits

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

Interest on Capital: If the partnership deed is silent on interest on partner's capital, then according to the Partnership Act of 1932, no interest on capital should be given to the partners of the firm. However, interest on capital is given only out of the profits, if mutually agreed by all the partners.

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

Interest on partners capital is___________.

  1. An Expenditure

  2. An appropriation

  3. A Gain

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

Interest on capital account is an appropriation. Appropriation means it is paid only and only if there is profit. It is not a charge and hence, will not be provided if there is loss or if there are profits will be provided only till the extent of profits. 

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

In case of insolvency of a partner, any balance in reserve fund or profit and loss accounts is distributed to all the partners ______________.

  1. Equally

  2. In the profit sharing ratio

  3. In the ratio of capitals

  4. In sacrificing ratio
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In general, unless otherwise agreed upon, the partnership is dissolved upon the insolvency of a partner. In some cases, partnership agreements are made to ensure that if a partner becomes insolvent, there are clear guidelines on how the partnership continues.

The following rules shall be observed subject to agreement by the partners:

  • All the losses of the company including deficiencies of capital shall be paid out of profits first, then out of the capital and lastly if necessary by the partners individually in proportions to which they are entitled to share profits.
  • All the assets of the company including all the sums contributed by the partners shall be applied in the following manner:
  • In paying all the debts of the firm to the third parties
  • in paying each partner rateable what is due to him from the firm for advances as distinguished from capital
  • in paying to each partner rateable what is due to him on account of capital
  • The residue shall be divided among the partners in the proportions in which they were entitled to share profits.

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

Partnership created for a particular adventure or a particular undertaking is called __________.

  1. Particular partnership

  2. Limited partnership

  3. Partnership at will

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

A partnership can be formed for carrying on continuous business, or it can be formed for one particular venture or undertaking. If the partnership is formed only to carry out one business venture or to complete one undertaking such a partnership is known as a particular partnership.

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

The transferee of a share of a partner's interest in a firm is called ____________.

  1. senior partner

  2. active partner

  3. sub partner

  4. dormant partner
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A Sub-partner is a partner in a partnership firm who agrees to share his profits in a partnership firm with an outsider to the firm. A sub-partner does not hold any right against the firm nor is liable to any debts caused by the firm.

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

Profit and losses of the firm are to be shared equally ____________________.

  1. When the partnership deed is silent about it

  2. As per Partnership Act in the absence of anything in the partnership deed to the contrary

  3. Both the circumstances

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

b'P&L of the firm are to be shared equally as per the partnership act and also in the absence of anything in the partnership deed to the contrary.'

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

Partnership firm is not liable for the acts of the firm done ____________________.

  1. in individual/personal capacity by a partner

  2. without concurrence of all the partners

  3. without concurrence of majority partners

  4. not mentioned in partnership deed
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A partnership firm is only liable for acts done within the scope of partnership business; it is not liable for acts done by a partner in their personal capacity.

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

Which of the following statements is not true?

  1. It is not true that all partners can have limited liability in a limited partnership

  2. Capital contributions do not have to be equal from each partner

  3. A minor has a right to access and inspect books of accounts of partnership firm in which he is partner

  4. Interest on capital is a reward for the different amounts of work partners may perform
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Interest will be allowed to each partner on the capital contributed by him . Interest on capital of the partners is calculated for the relevant period for which the amount of capital has been used in the business. Capital introduced or withdrawn by a partner during the accounting year has to be taken for the purpose of calculation and definitely is not a reward for the partners.