NCERT Class 12 Accountancy Accounting for Partnership Basic Concepts

MCQ Questions for NCERT Class 12 Accountancy Accounting for Partnership Basic Concepts

Question. Sangeeta and Ankita are partners in a firm. Sangeeta’s capital is ₹70,000 and Ankita’s Capital is ₹50.000. Firm’s profit is ₹60,000. Ankita share in profit will be :
(a) ₹25,000
(b) ₹3 0,000
(c) ₹35,000
(d) ₹20,00

Answer: B

Question. Net profit of a firm is ₹79,800. Manager is entitled to a commission of 5% of profits after charging his commission. Manager’s Commission will be :
(a) ₹4,200
(b) ₹380
(c) ₹3,990
(d) ₹3,800

Answer D

Question. When partners’ capital accounts are floating, which one of the following items will be written on the credit side of the partners’ capital accounts :
(a) Interest on drawings
(b) Loan advanced by partner to the firm
(c) Partner’s share in the firm’s loss
(d) Salary to the active partners

Answer: D

Question. Which accounts are opened when the capitals are fluctuating
(a) Only Capital Accounts
(b) Only Current Accounts
(c) Capital Accounts as well as Current Accounts
(d) Either Capital Accounts or Current Accounts

Answer: A

Question. Ram and Shyam are partners in the ratio of 3:2. Before profit distribution, ‘ Ram is entitled to 5% commission of the net profit (after charging such commission). Before charging commission, firm’s profit was ₹42,000. Shyam’s share in profit will be :
(a) ₹16,000
(b) ₹24,000
(c) ₹26,000
(d) ₹16,400

Answer: A

Question. For the firm interest on capital is :
(a) Capital Payment
(b) Capital Receipt
(c) Loss
(d) Income

Answer: C

Question. Net profit of a firm is ₹49,500. Manager is entitled to a commission of 10% on profits before charging his commission. Manager’s Commission will be :
(a) ₹4,950
(b) ₹4,500
(c) ₹5,500
(d) ₹495

Answer: A

Question. A, B and C are partners in the ratio of 5 : 3 : 2. Before B’s salary of ₹17,000 firm’s profit is ₹97,000. How much in total B will receive from the firm
(a) ₹17,000
(b) ₹40,000
(c) ₹24,000
(d) ₹41,000

Answer: D

Question. A and B are partners. According to Profit and Loss Account, the net profit for the year is ₹2,00,000. The total interest on partner’s drawings is ₹1,000. As salary is ₹40,000 per year and B’s salary is ₹3,000 per month. The net profit as per Profit and Loss Appropriation Account will be :
(a) ₹1,23,000
(b) ₹1,25,000
(c) ₹1,56,000
(d) ₹1,58,000

Answer: B

Question. How would you close the Partner’s Drawing Account:
(a) By transfer to Capital or Current Account Debit Side.
(b) By transfer to Capital Account Credit Side.
(c) By transfer to Current Account Credit Side.
(d) Either ‘B‘ or ‘C’.

Answer: A

Question. If date of drawings of the partner’s is not given in the question, interest is charged for how much time
(a) 1 month
(b) 3 months
(c) 6 months
(d) 12 months

Answer: C

Question. Interest on partner’s drawings will be credited to
(a) Profit and Loss Account
(b) Profit and Loss Appropriation Account
(c) Partner’s Capital Accounts
(d) None of the Above

Answer: B

Question. Ajay is a partner in a firm. He withdrew ₹2,000 per month on the last day of every month during the year ended 31st March, 2019. If interest on drawings is charged @ 9% p.a. the interest charged will be :
(a) ₹990
(b) ₹1,080
(c) ₹1,170
(d) ₹2,160

Answer: A

Question. Charulata is a partner in a firm. She withdrew ₹10,000 in each quarter during the year ended 31st March, 2019. Interest on her drawings @ 9% p.a. will be:
(a) ₹1,350
(b) ₹2,250
(c) ₹900
(d) ₹1,800

Answer: D

Question. Which accounts are opened when the capitals are fixed
(a) Only Capital Accounts
(b) Only Current Accounts
(c) Capital Accounts as well as Current Accounts
(d) Either Capital Accounts or Current Accounts

Answer: C

Question. Anuradha is a partner in a firm. She withdrew ₹6,000 in the beginning of each quarter during the year ended 31st March, 2019. Interest on her drawings @ 10% p.a. will be :
(a) ₹900
(b) ₹1,200
(c) ₹1,500
(d) ₹600

Answer: C

Question. Balance of partner’s current accounts are :
(a) Debit balance
(b) Credit balances
(c) Debit or Credit balances
(d) Neither Debit nor credit balances

Answer: C

Question. A, B and C are partners in a firm without any agreement. They have contributed 750,000, 730,000 and 720,000 by way of capital in the firm. A was unable to work for six months in a year due to illness. At the end of year, firm earned a pro lit of 7 15,000. A’s share in the profit will be :
(a) 77.500
(b) 73,750
(c) 75,000
(d) 72,500

Answer: C

Question. In a partnership Firm, partner A is entitled a monthly salary of ₹7,500. At the end of the year, firm earned a profit of ₹75,000 after charging T’s salary. If the manager is entitled a commission of 10% on the net profit after charging his commission, Manager’s commission will be :
(a) ₹7,500
(b) ₹16,500
(c) ₹8,250
(d) ₹15,000

Answer: D

Question. Which item is recorded on the credit side of partner’s current accounts :
(a) Interest on Fanner’s Capitals
(b) Salaries of Partners
(c) Share of profits of Partners
(d) All of the Above

Answer: D

Question. According to Profit and Loss Account, the net profit for the year is ₹1,40,000. The total interest on partner’s capital is RS 8,000 and a partner is to be allowed commission of ₹5,000. The total interest on partner’s drawings is ₹1,200. The net profit as per Profit and Loss Appropriation Account will be :
(a) ₹1,28,200
(b) ₹1,44,200
(c) ₹1,25,800
(d) ₹1,41,800

Answer: A

Question. If the Partner’s Capital Accounts are fluctuating, in that case following item/items will be recorded in the credit side of capital accounts :
(a) Interest on capital
(b) Salary of partners
(c) Commission of partners
(d) All of the above

Answer: D

Question. If a fixed amount is withdrawn by a partner on the first day of every month, interest on the total amount is charged for …………… months :
(a) 6
(b) 61/2
(c) 51/2
(d) 12

Answer: B

Question. Interest on partner’s capitals will be credited to :
(a) Profit and Loss Account
(b) Profit and Loss Appropriation Account
(c) Interest Account
(d) Partner’s Capital Accounts

Answer: D

Question. Interest on partner’s capitals will be debited to :
(a) Profit and Loss Account
(b) Profit and Loss Appropriation Account
(c) Partner’s Capital Accounts
(d) None of the Above

Answer: B

Accounting for Partnership : Basic Concepts

You have learnt about the preparation of final accounts for a sole proprietary concern. As the business expands, one needs more capital and larger number of people to manage the business and share its risks. In such a situation, people usually adopt the partnership form of organisation. Accounting for partnership firms has it’s own peculiarities, as the partnership firm comes into existence when two or more persons come together to establish business and share its profits. On many issues affecting distribution of profits, there may not be any specific agreement between the partners. In such a situation the provisions of the Indian Partnership Act 1932 apply. Similarly, calculation of interest on capital, interest on drawings and maintenance of partners capital accounts have their own peculiarities. Not only that a variety of adjustments are required on the death of a partner or when a new partner is admitted and so on. These peculiar situations need specific treatment in accounting that need to be clarified.

The present chapter discusses some basic aspects of partnership such as distribution of profit, maintenance of capital accounts, etc. The treatment of situations like admission of partner, retirement, death and dissolution have been taken up in the subsequent chapters.

2.1 Nature of Partnership

When two or more persons join hands to set up a business and share its profits and losses, they are said to be in partnership. Section 4 of the Indian Partnership Act 1932 defines partnership as the ‘relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all’. Persons who have entered into partnership with one another are individually called ‘partners’ and collectively called ‘firm’. The name under which the business is carried is called the ‘firm’s name’. A partnership firm has no separate legalentity, apart from the partners constituting it. Thus, the essential features ofpartnership are:

1. Two or More Persons: In order to form partnership, there should be at least two persons coming together for a common goal. In other words, the minimum number of partners in a firm can be two. There is however, a limit on their maximum number. If a firm is engaged in the banking business, it can have a maximum of ten partners while in case of any other business, the maximum number of partners can be twenty.

2. Agreement: Partnership is the result of an agreement between two or more persons to do business and share its profits and losses. The agreement becomes the basis of relationship between the partners. It is not necessary that such agreement is in written form. An oral agreement is equally valid. But in order to avoid disputes, it is preferred that thepartners have a written agreement.

3. Business: The agreement should be to carry on some business. Mere co-ownership of a property does not amount to partnership. For example, if Rohit and Sachin jointly purchase a plot of land, they become the joint owners of the property and not the partners. But if they are in the business of purchase and sale of land for the purpose of making profit, they will be called partners.

4. Mutual Agency: The business of a partnership concern may be carried on by all the partners or any of them acting for all. This statement has two important implications. First, every partner is entitled to participate in the conduct of the affairs of its business. Second, that there exists a relationship of mutual agency between all the partners. Each partner carrying on the business is the principal as well as the agent for all the other partners. He can bind other partners by his acts and also is bound by the acts of other partners with regard to business of the firm. Relationship of mutual agency is so important that one can say that there would be no partnership, if the element of mutual agency is absent.

5. Sharing of Profit: Another important element of partnership is that, the agreement between partners must be to share profits and losses of a business. Though the definition contained in the Partnership Act describes partnership as relation between people who agree to share the profits of a business, the sharing of loss is implied. Thus, sharing of profits and losses is important. If some persons join hands for the purpose of some charitable activity, it will not be termed as partnership.

6. Liability of Partnership: Each partner is liable jointly with all the other partners and also severally to the third party for all the acts of the firm done while he is a partner. Not only that the liability of a partner for acts of the firm is also unlimited. This implies that his private assets can also be used for paying off the firm’s debts.

2.2 Partnership Deed

Partnership comes into existence as a result of agreement among the partners. The agreement can be either oral or written. The Partnership Act does not require that the agreement must be in writing. But wherever it is in writing, the document, which contains terms of the agreement is called ‘Partnership Deed’. It generally contains the details about all the aspects affecting the relationship between the partners including the objective of business, contribution of capital by each partner, ratio in which the profits and the losses will be shared by the partners and entitlement of partners to interest on capital, interest on loan, etc. The clauses of partnership deed can be altered with the consent of all the partners. The deed should be properly drafted and prepared as per the provisions of the ‘Stamp Act’ and preferably registered with the Registrar of Firms.

Questions for Practice

Short Answer Questions

1. Define Partnership Deed.

2. Explain in 50 words as to why it is considered desirable to make the partnership agreement in writing.

3. List the items which may be debited or credited in capital accounts of the partners when:

(i) Capitals are fixed.

(ii) Capital are fluctuating.

4. Why is Profit and Loss Adjustment Account prepared? Explain.

5. Give two circumstances under which the fixed capitals of partners may change.

6. If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on total amount withdrawn will be calculated?

Please refer to attached file for NCERT Class 12 Accountancy Accounting for Partnership Basic Concepts