Absence of Partnership Deed(practice paper)

(Basics of Partnership)

Topic : In the absence of Partnership Deed 

1. State the provisions of ‘Indian Partnership Act, 1932’ in the absence of partnership deed regarding (i) Interest on Partner’s Drawings and (ii) Interest on Advances other than capital. [1]

2. X and Y are partners in a firm without a partnership deed. X is active partner and claims a salary of Rs.36,000 per month. State with reason whether the claim is valid or not. [1]

3. Amit has provided a capital of Rs.1,00,000 where as Vinod had provided Rs.20,000 only as capital. Vinod however has provided Rs.40,000 as loan to the firm. There is no partnership agreement. Vinod claims interest of Rs.2,400. Whereas other partners do not want to give any interest. State giving reason who is correct in this case. [1]

4. A and B started business on July 1, 2004, each partner contributing Rs.1,50,000 as his share of capital. Three months later, on October 1, 2004, B makes an additional contribution of Rs.1,00,000 which is treated as loan. The profit for the period ending March 2005 was Rs.85,000 before charging any interest. All the partners were entitled to a salary of Rs.3,000 each per quarter. The partners had drawn Rs.24,000 each on 1st January 2005. Prepare P/L Appropriation Account. [3]

5. X and Y are partners in a firm. State by giving reasons whether their claims are valid if partnership deed is silent in the following matters:

(i) Y has advanced a loan of Rs.2,00,000 to the firm. He claims interest at the usual  interest charged by banks. The rate of interest is 15% p.a.

(ii) X has contributed Rs.2,00,000 and Y Rs.1,00,000 as capital. Y wants that profits be shared equally.                                                                                                                                             [3]

6. Vinod and Kumar entered into partnership on 1st April 2013 without any partnership deed. They introduced capital Rs.5,00,000 and Rs.3,00,000 respectively. On 31st October 2013, Vinod advanced Rs.2,00,000 by way of loan to the firm without any agreement as to interest. The profit and loss account for the year ended 31.3.2014 showed a profit Rs.4,30,000 but the partners could not agree upon the amount of interest on loan to be charged and the basis of division of profits. Pass a journal entry for the distribution of profit between the partners and prepare the capital Accounts of both the partners and loan account of Vinod.                                                                              (4) 

7. X and Y are partners. They do not have any partnership agreement. What is your opinion in the following cases:

(i) X spends twice the time that Y devotes to business. X claims that he should get a salary of Rs.40,000 per month for his extra time spent.

(ii) Y has provided a capital of Rs.1,00,000 whereas X has provided Rs.10,000 only as capital. X however has provided 20,000 as loan to the firm. What interest will be give to X and Y.

(iii) X wants to introduce his son Z into his business. Y object to it.

(iv) Y wants that profit should be distributed in the ratio of capitals but X wants that it should be distributed equally.                                                [4]

8. In the absence of partnership deed, what are the rules for following:

(i) Salary to partners

(ii) Interest on partners capital

(iii) Interest on partners loan

(iv) Interest on partners drawings

(v) Division of profit among the partners                                                     [3]

                                                               ANSWERS

1. (i) No interest will be charged on drawings

(ii) Interest will provided at the rate of 6% p.a. on the partner’s loan.

2. Claim of X is not valid. In the absence of partnership deed partners are not allowed to take any

salary as per the Partnership Act, 1932.

3. Vinod is correct because in the absence of partnership deed 6% p.a. interest is given on partner’s

loan.

4. Divisible Profit Rs.82,000 will be shared by the partners equally i.e. 41,000 each.

5. (i) Y’s claim is not valid. In the absence of partnership deed a partner can claim only 6% p.a.

interest on his loan.

(ii) Y’s claim is valid because in the absence of partnership deed profits are shared equally.

6. Interest on Vinod’s loan Rs.5,000; Profit to partners Rs.2,12,500 each; Balance of Vinod’s

Capital A/c Rs.7,12,500; Kumar Rs.5,12,500; Balance of Vinod’s Loan Rs.2,05,000.

7. (i) No salary will be paid to X

(ii) No interest on capital to any partner. X will get 6% p.a. interest on his loan.

(iii) X cannot admit his son when other partners are not ready for this.

(iv) Profits are to be shared equally.

8. (i) No salary to any partner

(ii) No interest on capital to any partner

(iii) Partners are entitled for 6% p.a. interest on loan advanced to the firm

(iv) No interest on drawings is charged

(v) Profits are to be shared equally