RPSC ADDA

PARTNERSHIP ACCOUNTS
INTRODUCTION OF PARTNERSHIP ACCOUNTS
DEFINITION OF PARTNERSHIP:
According to section 4 of the Indian Partnership Act, 1932 partnership means, “the relationship between
persons who have agreed to share 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 a ‘Firm’.
FEATURES OF PARTNERSHIP:
According to this definition the essential features of partnership are –
1. An association of two or more persons: The number of persons constituting a partnership must not exceed
50.
2. Agreement: In order to form partnership there has to be an agreement. An agreement entered into by all
partners may be in writing or oral. It is better to have an agreement in writing to avoid disputes.
3. Carrying on a business: The partnership must be entered into for the purpose of carrying on the business and
not for any other purpose.
4. Lawful business: The business should be lawful. “ Detail Discussion In RPSC Adda“
5. Profit sharing: The aim of a partnership business is to earn profit and share profit and losses of the business.
6. Mutual Agency: The partnership business is carried on by all or any of them acting for all.

LIMITED LIABILITY PARTNRSHIP :

The Indian Partnership Act, 1932 provides for a general form of partnership which is the most prevalent form in
India, but, over time the general form of partnership have lost its charm because of the inherent disadvantages in
it, the most important shortcoming is the Unlimited Liability of all partner of business debts and legal
consequences, regardless of their holding as the firm is not a legal entity. General Partners are also jointly and
severally liable for tortuous of Co- partner. Each partner has the exposure of their personal assets being
appropriated and liquidated to meet partnership dues.
The Limited Liability Partnership (LLP) is viewed as an alternative corporate business proposal that provides the
benefit of limited liability but allows its members, the flexibility of organizing their internal structure as a
partnership, which is based on a mutually arrived agreement.
The LLP will be a separate entity, liable to the full extent of its assets, with the liability of the partners being
limited to their agreed contribution in the LLP which may be of tangible or intangible nature or both tangible and
intangible in nature. No partner would be liable on account of the independent or un-authorized actions of other
partners or their misconduct. The liabilities of the LLP and partners who are found to have acted with intent to
defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of
the LLP.
The main benefit in an LLP is that it is taxed as a partnership, but has the benefits of being a corporate, or more
significantly, a juristic entity with limited liability. An LLP has the special characteristic of being a separate legal
personality distinct from its partners . The LLP is a body corporate in nature.

PARTNERSHIP DEED:
1. Partnership arises not from status but from agreement which may be either verbal or in writing.
2. It is better that the agreement should be in writing so that the disputes if any in future can be settled easily.
3. The written agreement between or among the partners is known as deed or agreement.
THE AGREEMENT INCLUDES THE FOLLOWING –
1. Name and address of the firm and partners and the duration of the partnership.
2. Amount of capital to be contributed by each partner and the amount of drawings to be taken at the end of the
month or year.

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3. Interest on capital and Interest on loans given by the partners and also the interest on drawings, if any, and
rate of such interest.
4. Proportion or division of profit or losses.
5. Salary, commission or Bonus (Remuneration) payable to Partners.
6. When and how a new partner is to be admitted or an old partner is to be retired.
7. Methods of valuation of goodwill in case of admission, retirement or death of a partner.
8. Methods of keeping accounts and audit.
9. Rights, duties and liabilities of the partners.
10. In case of dispute, how the settlement is to be made between or among the partners.
Often there is no written agreement or, if there is one , it may be silent on a particular point. In that case the
relevant section of the partnership Act will apply. If on any point the Partnership Deed contains a clause, it will
hold good, otherwise the provisions of the Partnership Act relating to the question will apply.
In the absence of Partnership deed following rules under section 12 to 17 of partnership act is applicable:
(i) No partner has the right to salary, Bonus or commission.
(ii) No interest is to be allowed on capital.
(iii) No interest is to be charged on the drawings.
(iv) Interest at the rate of 6% p.a. is to be allowed on a partner’s loan to the firm, and
(v) Profit and losses are to be shared equally.
Note : In the absence of an agreement, the interest on capital and salary Bonus & commission payable to a partner
will be paid only, if there is profit.

POWERS OF PARTNERS :
Sometimes unless a public notice has been given to the contrary, certain contracts entered into by a partner
on behalf of the partnership, even without consulting other partners are binding and the provisions of the Act
relating to the question will apply. In case of a trading firm, the implied powers of a partners are the following:
1. Buying and selling of goods.
2. Receiving payments on behalf of the firm and giving valid receipt.
3. Drawing cheques and drawing, accepting and endorsing bills of exchange and promissory notes in the name
of the firm.
4. Borrowing money on behalf of the firm with or without pledging the stock-in-trade.
5. Engaging servants for the business of the firm.
In certain cases an individual partner has no power to bind the firm. This is to say that third parties cannot bind
the firm unless all the partners have agreed. These cases are :
(a) Submitting a dispute relating to the firm arbitration.
(b) Opening a bank account on behalf of the firm in the name of partner.
(c) Compromise of any claim or portion of claim by the firm.
(d) Withdrawal of a suit or proceeding, filed on behalf of the firm.
(e) Admission of any liability in a suit or proceedings against the firm.
(f) Acquisition of immovable property belonging to the firm.
(g) Entering into partnership on behalf of the firm.
The rights, duties and power of partners can be changed by mutual consent.
ACCOUNTING IN PARTNERSHIP FIRM:
1. There is no fundamental difference between the accounting of partnership firm and a sole trader.
2. In both the organisations primary books and ledgers are kept.
3. Final accounts are prepared in both the organisations in the same manner.
4. But in partnership accounts there are as many capital accounts as there are partners as against one capital
account in a sole proprietorship business. For example, if in a firm there are three partners then there would
be three capital accounts, one for each partner.

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5. Capital brought in by the individual partner is credited to his own capital account. In the same way on
withdrawal by the partner the drawing account is debited. So there will be as many drawings accounts as
there are partners in the firm. “ Detail Discussion In RPSC Adda“
6. At the end of the year Trading and Profit and Loss account is prepared in the same manner as prepared by
the sole trader to find out profit or loss earned during the year.

DISTRIBUTION OF PROFITS : P & L APPROPRIATION ON A/C :

After ascertaining net profit as per P&L a/c, P&L appropriation A/c is usually prepared to distribute the
net profits among various heads. It is a nominal Account in nature. This being an extension of P & L A/c is
credited with net profit and interest on drawings and debited with Interest on capital, Partners salary, Partner
commission. A certain part of profit if required can be transferred to general Reserve and profit then left are
distributed among partner in their profit sharing Ratio.

Journal Entries relating to P&L appropriation A/c :-

1- For Transfer of profit from P&L A/c to P&L appropriation A/c :
P & L A/c Dr.
To P & L appropriation A/c
2- For Interest on capital :
(a) Interest on capital A/c Dr.
To Partners capital / Current A/c
(b) P & L appropriation A/c A/c
To Interest on capital A/c
3- For Partners Salary / Commission :
(a) Partners Salary / Commission A/c Dr.
To partners Capital / current A/c
(b) P & L Appropriation A/c Dr.
To Partners Salary / commission A/c
4- For Interest on Drawings:
(a) Partners Capital / Current A/c Dr.
To Interest on Drawings A/c
(b) Interest on Drawings A/c Dr.
To P & L Approp A/c
5- For transfer to Reserve :
P & L appropriation A/c Dr.
To Reserve A/c
6- For Distribution of profits:
P & L appropriation A/c Dr.
To Partners Capital/ Current A/c

Notes:- 1 . If there is a loss in P & L A/c then it is directly transferred to partners capital A/c and is NOT transferred
to P & L appropriation A/c.
2. Maximum amount of profits to be distributed among partner is restricted to the amount of profits available for
appropriation.
P & L appropriation A/c. for The Year ended ..............
Particulars Amount Particulars Amount
To Interest on capital ----- By P & L A/c -------
To Partners Salary/commission By Interest on Drawings -------
To Transfer to Reserve -----
To Profit transferred to
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A – Capital / Current A/c -----
B – Capital/ Current A/c

-----

DIFFERENCE BETWEEN CHARGE AGAINST PROFIT AND APPROPRIATION OUT OF PROFIT

Basis Charge Against Profit Appropriation Out of Profit
1 Nature It means deduction from revenue to It means distribution of net profit to
ascertain net profit/ loss. different heads.
2 When It is made even if there is loss It is made only when there is profit
made
3 Recording It is debited to Profit and Loss Account. It is debited to Profit and Loss
Appropriation Account.
4 Priority It is done before appropriation of profit It is done after creation of all charges.
5 Example Rent paid to a partner, interest on Transfer to General Reserve.
partner’s loan.
INTEREST ON DRAWINGS :
Drawing means the amount withdrawn , in cash or in kind, for personal use. If the partnership deed so
provided, interest on drawing is charged from the partners concerned.
Interest on Drawings

Case 1 Case 2
Amounts of Drawings is uniform / same If any of the conditions
AND in case 1 is not
satisfied then apply case 2
Time interval between to two consecutive drawings is same.

Interest on Drawings = Total Drawings × Rate ×Average period Simple Method average Method
100 12 months
Average period = Time left after First Drawings + Time Left after Last Drawings
2

1. Simple Method :
Under simple method interest is calculated for the amount of every drawing by certain rate of interest for
a period of withdrawal i.e. from the date of withdrawal to the date of final accounts. The following formula is
used for calculating interest – “ Detail Discussion In RPSC Adda“
Interest of Drawings = Amount of Drawing x Rate of interest x Months
100 x 12 Months
2. Product Method :
Under product method each amount of drawing is multiplied by the number of days or months (period
from the date of drawing to the last date of accounting year) to find out the product and then interest is
calculated on the total product at the rate of interest for one month or one day.
Interest on drawings = Total of product x Rate of interest on drawings x 1
12 months or 365 days

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Note :-
1- If date of withdrawal is not given in the question assume drawings are made averagely / evenly throughout
the period and charge interest for a period of 6 months.
2- If ‘p.a.’ word is not attached with the rate of Drawings then ignore time factor.

INTEREST ON CAPITAL :
The firm has to give interest to partner on the capital which has been contributed by them if the agreement so
provides:
(i) Interest on capital is generally computed on the opening balance of the partners capital
Calculation of opening capital
Closing Capital -
Add : Drawings -
Less : Net profit -
Less : Additional Capital introduced -
Opening Capital -

(ii) If any additional capital is introduced or withdrawn during the year, interest is allowed on it for the period it
has remained in the business.
IMPORTANT POINTS:
a) When the partnership deed is silent about the interest on capital:- It is not allowed.
When the partnership deed provides for interest on capital : “ Detail Discussion In RPSC Adda“
 But silent as to the treatment of interest on capital - it is allowed only if there is profit. ie – treated as
appropriation out of profits.
 Interest is to be treated as charge, is provided in the deed – it is allowed whether there is a profit or loss. ie.
treated as charge against profit

COMMISSION TO PARTNERS
Commission may be allowed to the partners either.
(i) As a percentage of net profit before charging such commission.
Commission = Profits x Rate of Commission
100
(ii) As a percentage of net profit after charging such commission.
Commission = Profits x Rate of Commission
100 + Rate of commission
PARTNER’S CAPITAL ACCOUNTS:
A separate capital account is maintained for every partner in a partnership firm. Capital accounts may be
prepared as per the following two methods –
(1) Fixed capital Method and (2) Fluctuating capital method
(1) Fixed capital Method :
Fixed Capital, as the title suggests, means the capitals which remain unaltered. When Fixed Capital
Method is followed, two accounts, i.e., the Capital Account and the Current Account for each partner are
maintained.
(i) Capital Accounts:
Fixed Capital means the capital which remains unaltered, i.e., fixed unless additional capital is introduced
or withdrawal is made from the existing capital. In other words, if fresh capital is not introduced or capital
is not withdrawn, Capital Account of a partner will continue to show the same balance year after year.
(ii)Current Accounts:

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Current Account is maintained to record the transactions other than introduction and withdrawal of capital
such as interest on capital, interest on drawings, salary or commission to partner, share of profits/losses
are recorded in the Current Account. As a result, the balance of Current Account fluctuates.
(i) Partner's Capital Account
Date Particulars A B Date Particulars A B
To Cash (Withdrawal of capital) By Balance b/d
To Balance c/d By Cash (additional
capital introduced)

(ii)Partner's Current Account

Date Particulars A B Date Particulars A B
To Balance b/d By Balance b/d
To Drawings By Interest on capital
To Interest on drawings By Interest on Partners
To P & L A/c (Divisible loss) loan
By Rent paid to partners
By Partners Salary
To Balance c/d Commission
(B/F) By P & L App. A/c
(Divisible profit)
By Balance c/d (B/F)

(2) Fluctuating capital method :- Under Fluctuating Capital Method only one account namely—‘capital
account’ is maintained for each partner. Capital Accounts are said to be fluctuating as the amounts of capital of
each partner do not remain fixed but alters with every credit or debit. These entries being for salary or commission,
interest allowed on capital, drawings, interest charged on drawings, share of profit credited, and share of loss
debited. When this method is followed Capital Accounts having credit balances are shown on the liabilities side
while capital accounts having debit balances are shown on the assets side of the Balance Sheet.
Usually, this method is followed for maintaining capital accounts and therefore, in the absence of any instructions,
the partners capital accounts should be prepared following fluctuating capital accounts method.
“ Detail Discussion In RPSC Adda“
Partner’s Capital Account
Date Particulars A B Date Particular A B
To Balance b/d By Balance b/d
To Drawings By Cash (Additional
To Int. on drawings Capital Introduced)
To P & L A/c By Interest on capital
(Divisible loss) By Partners Salary,
To Balance c/d Commission
(B/F) By P & L App. A/c
(Divisible profit)
By Balance C/d (B/F)

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DIFFERENCE BETWEEN FIXED AND FLUCTUATING CAPITAL ACCOUNTS:
Basis Fixed Capital Accounts Fluctuation Capital Accounts
1 No. of Two accounts are maintained for each Only one account (capital account) is
Accounts partner. Fixed Capital Account and maintained for each partner
Maintained Current Account.
2 Frequency Balance in Fixed Capital Account does The balance changes frequently from
of Change not change except under specific period to period.
circumstance.
3 Adjustment All adjustments for drawings, interest on All adjustments for drawings, interest on
for drawings, interest on capital, salary, capital, salary, share of profits are made
Drawing, share of profit/ loss are made in Current in capital account
etc. Account.
4 Balance It always shows credit or positive Fluctuating capital account may
balance in capital account sometimes show a debit or negative
balance.

GUARANTEE OF MINIMUM PROFIT TO A PARTNER :

Sometimes a partners may be guaranteed a minimum amount of his share in profits. Such a guarantee
may be provided by one or some or all of the partners in an existing profit-sharing ratio or in some other agreed
ratio. If in any year, the actual share of profit is less than the guaranteed amount, the deficiency is borne by the
guaranteeing partners in their agreed ratio.
There are three possibilities as far as share of deficiency by other partners is concerned. These are as
follows:
(i) Excess is payable by one of the remaining partners.
(ii) Excess is payable by at least two or all the partners in an agreed ratio.
(iii) Excess is payable by remaining partners in their mutual profit sharing ratio.
If the question is silent about the nature of guarantee, the burden of guarantee is borne by the remaining partners
in their mutual profit sharing ratio.

CAPITAL RATIO:
Sometimes partners agree to share profits and losses in their capital ratio. In such a case the following
guidelines are to be kept in mind.
(i) If the capital are fixed the profits will be distributed in the partners fixed capital ratio. Here the balance of
current account is ignored.
(ii) If capitals are fluctuating and partners introduce or withdraw capital during the year then weighted average
method is used.

PAST ADJUSTMENTS (ADJUSTMENTS AFTER CLOSING OF PARTNERSHIP ACCOUNTS)

If after the preparation of final account it is realized that some matters are omitted (left out of
consideration) or have been wrongly entered than instead of alternating old accounts an adjustment entry is passed
in the journal such that the net result of error or omission is corrected. In order to rectify such errors the adjustment
entries are passed through an account called “profit and loss adjustment account”. Generally the following
adjustments are to be made.
(i) When interest on capital and interest on drawing are omitted.
(ii) When salary or commission payable to a partner have been omitted.
(iii) When profit sharing ratio has been changed.

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QUESTIONS (PARTNERSHIP FUNDAMENTALS)
1. Which of the following is not an essential feature of a partnership firm:
(a) Association of two or more persons (b) Compulsory registration “RPSC ADDA”
(c) Mutual agency. (d) Existence of business
2. The relationship between persons who have agreed to share the profit of a business carried on by all or any of
them acting for all is known as:
(a) Partnership (b) Joint Venture (c) Association of Persons (d) Body of Individual
3. Features of a partnership firm are:
(a) Two or more persons are carrying common business under an agreement.
(b) They are sharing profits and losses in the fixed ratio.
(c) Business is carried by all or any of them acting for all as an agent
(d) All of the above
4. If there is no written partnership deed or agreement the provisions of ... are applicable:
(a) Partnership Act, 1932 (b) Companies Act, 1956 (c) Contract Act (d) Hindu law
5. In case the partners are having fixed capital, then interest on capital will be allowed on:
(a) Current capital (b) Current plus fixed capital (c) Fixed capital only (d) None
6. In the absence of any agreement, partners are liable to receive interest on their loans at the rate of:
(a) 12% Simple Interest (b) 12% Compounded Annually
(c) 6% Simple Interest (d) 6% p.a. Simple Interest
7. Following are the essential elements of a partnership firm except
(a) There are at least two persons (b) There is an agreement between all partners
(c) Partnership agreement is for some business (d) Equal share of profits and losses
8. In case a partner is assured some guaranteed profit from firm then in case of deficiency of actual profit as per
profit sharing ratio and guaranteed profit to the partner will be borne by:
(a) All the partners in the profit sharing ratio (b) Senior partner only
(c) Remaining partners in the ratio in which they gave guarantee (d) All the partners in their sacrificing ratio
9. If the partnership agreement provides for payment of interest on capital of the partners, then interest can be
paid only out of:
(a) Accumulated profits (b) Current profits (c) Past profits plus current profits (d) Capital also
10. To which account interest on capital allowed to a partner is debited
(a) Profit and loss A/c (b) Revaluation A/c
(c) Profit and loss Appropriation A/c (d) General reserve A/c
11. Relations of partners between themselves is that of a
(a) Close relatives (b) Close friends (c) Agents of each other (d) Junior-senior relationship
12. As per Partnership Act 1932, which of the following right is available to the partner
(a) Salary (b) Interest on capital (c) Bonus (d) Equal profit and loss
13. Which of these acts are outside the implied authority of a partner
(a) Acquisition of immovable property for the firm
(b) Buying and selling goods
(c) Engaging staff for the firm
(d) Receiving payments on behalf of the firm after giving valid receipt
14. Where a partner is entitled to interest on capital contributed by him, such interest will be payable:
(a) Only out of profits (b) Only out of capital
(c) As given in the deed (d) None of the above
15. Under average profit basis goodwill is calculated
(a) Average profits x Number of years purchase
(b) Super profits x Number of years purchase,

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(c) Total of the discounted value of expected future profit
(d) Super profit divided by expected rate of return.
16. The following trading results are available in respect of the business carried on by a firm :
2001 Loss Rs. 10,000
2002 Loss Rs. 5,000
2003 Profit Rs. 80,000
2004 Profit Rs. 55,000
The value of goodwill on the basis of 5 year's purchase of average profit of the business will be;
(a) Rs. 1,25,000 (b)Rs. 1,50,000 (c) Rs. 1,00,000 (d) Rs. 1,20,000
17. Current account of the partners; are opened when
(a) Capital is fluctuating (b) Capital is fixed
(c) Capital is fixed as well fluctuating (d) when fresh capital is added.
18. Under super profit method goodwill is calculated by
(a) Average profits x years purchase
(b) Super profits x Number of years purchase
(c) Total of the discounted value of expected future profits
(d) Super profit divided with expected rate of return.
19.X, Y and Z are partners in a firm. At the time of division of profit for the year there was dispute between the
partners. Profits before interest on partner's capital was Rs. 10,000 and X wanted interest on capital @ 20% as his
capital contribution was Rs. 1,00,000 as compared to that of Y and Z which was Rs. 75,000 and Rs. 50,000
respectively.
(a) Profits of Rs. 10,000 will be distributed equally. “RPSC ADDA”
(b) X will get the interest of Rs; 20,000 and the loss of Rs. 10,000 will be shared equally.
(c) All the partners will get interest on their capital and the loss will be shared eqully.
(d) None of the above.
20. A, Band C with capital of Rs. 50,000; Rs. 40,000 and Rs. 30,000 respectively were carrying on business in
partnership. The firm's reported profit for the year was Rs. 62,400. As per provisions of the Indian Partnership
Act, 1932, find out the share of each partner in the above amount after taking into account that no interest has
been provided on an advance by A of Rs. 40,000, in addition to his capital contribution.
(a) Rs. 20,000 for Partner B and C & Rs. 22,400 for partner A. (b) Rs. 20,800 each partner.
(c) 26000 for A, Rs. 20,800 and Rs. 15600 for C. (d) Rs. 20,000 each partner.
21. Guaranteed profit is generally given to
(a) Incoming partner (b) Retiring partner (c) Heirs of a deceased partner (d) all the three
22. Under annuity basis goodwill is calculated by
(a) Average profits x years of purchase
(b) Super profits x years of purchase
(c) Super profits x Annuity value of Rs. 1
(d) Super profit divided with expected rate of return
23. In the absence of an agreement, partners are entitled to :
(a) Salary (b) Commission (c) Interest on Loan and Advances (d) Profit share in capital ratio.
24. What would be the accounting entry for a partner's withdrawal of cash in lieu of salary?
(a) Salary a/c Dr.
To Cash a/c
(b) Cash a/c Dr.
To Partner's Current a/c “RPSC ADDA”
(c) Cash a/c Dr.
To Salary a/c
(d) Partner's Current a/c Dr.
To Cash a/c
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25. Interest on drawing of the partners is a
(a) Loss to business (b) profit to business (c) Profit to partners (c) loss to bank
26. Interest on capital of partner is a
(a) Loss to Partner (b) Profit to business (c) Loss to business (d)Loss to tax department
27. In the absence of specific provision in the partnership deed at what rate interest on loan of the partners would
be allowed
(a) @8% p.a. (b) @10% p.a. (c) @6% p.a. (d) Nil p.a.
28. X, Y and Z are partners in a firm. At the time of division of profit for the year there was dispute between the
partners. Profits before interest on partner's capital was Rs. 12,000 and Z demanded minimum profit of Rs. 5,000
as his financial position was not good. However, there was no written agreement on this profit.
(a) Other partners will pay Z the minimum profit and will suffer loss equally.
(b) Other partners will pay Z the minimum profit and will suffer loss in capital ratio.
(c) X & Y will take Rs. 3,500 each and Z will take Rs. 5000.
(d) Rs. 4,000 to each of the partners.
29. In the absence of specific provision in the partnership deed at what rate salary and remuneration would be
paid to the partners
(a) @ Rs. 15,000 p.m. (b) @ Rs. 20,000 p.m. (c) Nil (d) @ Rs. 10,000 p.m.
30. Which of the following shows the division of net income among partners at the end of the accounting year?
(a) P & L Appropriation a/c Dr.
To Partner's Capital a/c ` “RPSC ADDA”
(b) P & L a/c Dr.
To partner's Current a/c
(c) Partner's Current a/c Dr.
To P & L a/c
(d) None of the above.
31. What balance does a Partner's Current Account has
(a) Debit balance (b) Credit balance (c) Either Debit or Credit (d) None of the above.

32. Is rent paid to a partner is appropriation of profits

(a) It is appropriation of profit (b) It is not appropriation of profit
(c) If partner's contribution as capital is maximum (d) If partner is a working partner.
33. Which of these statements is true?
(a) Interest on capital is debited to capital account (b) Interest on drawing is credited to Capital account
(c) Salary and remuneration payable to partners is credited to current account
(d) None of these
34. How would you close the Partner's Drawing Account.
(a) By transfer to the debit of Capital or Current Account (b) By transfer to the credit of Capital Account
(c) By transfer to the credit of Current Account (d) Either (b) or (c)
35. Profit and Loss Appropriation Account is prepared by
(a) Sole Trader (b) Partnership Firm (c) (a) and (b) (d) None of above
36. Guarantee given to a partner 'A' by the other partners 'B & C' means
(a) In case of loss 'A' will not contribute towards that loss.
(b) In case of insufficient profits 'A' will withdraw only the minimum guarantee amount.
(c) In case of loss or insufficient profits 'A' will withdraw the minimum guarantee amount.
(d) None of the above
37. Product method is used for
(a) Distribution of profit and loss A/c (b) Distribution of revaluation results
(c) Interest on drawing (d) interest on capital

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38. Would interest on loan be allowed in the absence of any agreement
(a) No interest is allowed (b) Interest is allowed only agreed by all the other partners.
(c) Interest will be paid only when there are sufficient profits.
(d) Interest is allowed at 6% simple interest p.a.
39. Under capitalisation basis goodwill is calculated by
(a) Average profits, X years of purchase (b) Super profits X years of purchase
(c) Total of the discounted value of expected benefits(d) Super profit divided with expected rate of return
40. The profits for 1998-99 are Rs. 2,000; for 1999-2000 is Rs. 26,100 and for 2000-01 is Rs. 31,200. Closing
stock for 1999-2000 and 2000-01 includes the defective items of Rs. 2,200 and Rs. 6,200 respectively which were
considered as having market value NIL. Calculate goodwill on two years purchase of average profit.(on the basis
of simple average.)
(a) Rs. 47,400 (b) Rs. 35,400
(c) Rs. 27,400 (d) Rs. 34,600
41. In which account is the interest payable on the capital of the partner charged?
(a) P & L a/c (b) P & L (Adjustment) a/c (c) P & L Appropriation a/c (d) Realization a/c
42. Which of the following is odd one
(a) Memorandum of association (b) Agreement (c) Partnership deed (d) Firm name
43. In the absence of an agreement ,the partners are
(a) Entitled to 6% interest on their capitals, only when there are profits
(b) Entitled to 9% interest on their capitals, only when there are profits
(c) Entitled to interest on capital at the bank rate, only when there are profits “RPSC ADDA”
(d) Not entitled to any interest on their capitals
44. When it is not registered, a partnership firm is
(a) Deemed to be an illegal association and is disallowed to carry on business
(b) Allowed to carry on business subject to payment of penalty
(c) Allowed to carry on business subject to certain disabilities
(d) Allowed to carry on business only with the special permission of the Registrar of Firms
45. What time would be taken into consideration for calculation of interest on drawings if equal monthly amount
is drawn as drawing at the beginning of each month
(a) 7 months (b) 6 months (c) 5 months (d) 6.5 months
46.Where will you record interest on drawings in the final accounts of the firm
(a) Debit side of Profit & Loss Appropriation Account
(b) Credit side of Profit & Loss Appropriation Account
(c) Credit side of Profit & Loss Account (d) Debit side of Capital/Current Account only
47. An ordinary partnership firm can have:
(a) Not more than 20 partners (b) Not more than 50 partners
(c) Not less than 3 partners (d) Any number of partners.
48. Seeta and Geeta are partners sharing profits and losses in the ratio 4:1. Meeta was manager who received the
salary of Rs. 4000 p.m. in addition to a commission of 5% 'on net profits after charging such salary and
commission. Profits for the year is Rs. 6,78,000 before charging salary. Find the total remuneration of Meeta.
(a) Rs. 78,000 (b) Rs. 88,000 (c) Rs. 87,000 (d) Rs. 76,000
49. The profits of last five years are Rs. 85,000; Rs. 90,000; Rs. 80,000; Rs. 1,00,000 and Rs. 80,000. Find the
value of goodwill, if it is calculated on average profits of last five years on the basis of 3 years of purchase.
(a) Rs. 85,000 (b) Rs. 2,61,000 (c) Rs. 2,75,000 (d) Rs. 2,85,000
50. A partner acts as _____ for a firm.
(a) Employee (b) Employer (c) Agent (d) Third party

RPSC ADDA, 100 Feet Road, Near Swagat Vatika, Udaipur Ph. 9587230303
 RPSC ADDA
51. Every partner is bound to attend diligently to his...........in the conduct of the business.
(a) Rights (b) Meetings (c) Capital (d) Duties.
52. The profits and losses for the last years are 2001-0.2 Losses Rs. 8000; 2002-03 Losses Rs. 4500; 2003-04
Profits Rs. 1,00,000& 2004-05 Profits Rs. 74000, The average capital employed in the business is Rs. 2,40,000.
The rate of return expected from capital invested is 10%. The remuneration of partners is estimated to be Rs.
1,000 per month. Calculate the value of goodwill on the basis of two years purchase of super profits based on the
average of four years.
(a) Rs. 9,000 (b) Rs. 8750 (c) Rs. 8,500 (d) Rs. 8,250
53. Find the goodwill of the firm using capitalization method from the following information
Total Capital Employed in the firm Rs. 8,00,000
Reasonable Rate of Return 15% Profits for the year Rs. 6,00,000
(a) Rs. 80,00,000 (b)Rs. 40,00,000 (c) Rs. 32,00,000 (d)Rs. 42,00,000

ANSWER SHEET
1 B 11 C 21 A 31 C 41 C 51 D
2 A 12 D 22 C 32 B 42 A 52 B
3 D 13 A 23 C 33 C 43 D 53 C
4 A 14 A 24 D 34 A 44 C
5 C 15 A 25 B 35 B 45 D
6 D 16 B 26 C 36 C 46 B
7 D 17 B 27 C 37 C 47 A

8 C 18 B 28 D 38 D 48 A
9 B 19 A 29 C 39 D 49 B
10 C 20 A 30 A 40 B 50 C

RPSC ADDA, 100 Feet Road, Near Swagat Vatika, Udaipur Ph. 9587230303