Unit 1: Accounting for Partnership Firms – Basic Concepts · NCERT · Class 12 · Accountancy · Part 1

Q1Written answer

Define Partnership Deed.

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A partnership deed, also referred to as a partnership agreement, is a document of importance that contains the details of all the rights and responsibilities of the concerned parties involved in a business. It helps in preventing any kind of disputes or disagreements that can arise between partners over their role in the business and the associated benefits from the partnership in the firm.

Q2Written answer

Why is it considered desirable to make the partnership agreement in writing?

According to the Partnership Act 1932, having a Partnership deed in writing is not mandatory. However, it is a safe option to have it in writing as it helps avoid any kind of disputes that may arise between partners of a firm in future. It also helps resolution of any kind of dispute as a written partnership that is signed by all the partners is suitable for use as evidence in a court of law.

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Q3Written answer

List the items which may be debited or credited to the capital accounts of the partners when:

(i) Capitals are fixed

(ii) Capitals fluctuate

(i) The items that get credited are as follows:

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Worked solution

1. Opening capital balance

2. Additional capital or fresh capital that is added to the business

The items that get debited are as follows:

1. Part of capital that is withdrawn.

2. Closing capital balance

(ii) The items that get debited are as follows:

1. Opening capital balance

2. Fresh capital added in the accounting period

3. Salaries paid to partners

4. Profit share

5. Interest received on capital

The items that get debited are as follows:

1. Withdrawals done during the accounting year

2. Interest accumulated on withdrawals (drawing)

3. Closing capital balance

4. Loss on shares

Q4Written answer

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

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Worked solution

It is prepared because of the following reasons:

1. For recording transactions, errors or omissions which may be left while preparing the final accounts.

2. To act as an account for distributing profit and loss between partners

3. To accommodate for changes in the partnership deed

Q5Written answer

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

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Worked solution

The following circumstances lead to change in the fixed capital of partners:

1. Introducing fresh capital in the firm by a partner with consent from other partners.

2. When a portion of capital is withdrawn with the consent of partners.

Q6Written answer

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

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Worked solution

When there is a withdrawal of money on the first day of each quarter, then the corresponding interest is calculated for a period of seven and half months on the total amount that is withdrawn.

Q7Written answer

In the absence of a partnership deed, specify the rules relating to the following:

(i) Sharing of profits and losses.

(ii) Interest on partner’s capital.

(iii) Interest on partner’s drawings.

(iv) Interest on partner’s loan

(v) Salary to a partner.

(i) Sharing of profits and losses: If the partnership deed is absent, then the profit-sharing ratio should be equal among all partners, as per Partnership Act, 1932.

(ii) Interest on partner’s capital: If the partnership deed is absent, then as per Partnership Act, 1932, the partners are not entitled to interest earned on capital.

(iii) Interest on partner’s drawings: If the partnership deed is absent, then as per the Partnership Act, 1932, in the event of drawing money, it shall be charged to the partners.

(iv) Interest on partner’s loan: If the partnership deed is absent, then the partner is eligible for a 6% interest on a loan to the firm.

(v) Salary to a partner: In case of the absence of the partnership deed, the partners are not eligible for any salary; any salary whatsoever, if paid, will be as appropriation of profit (in case there is profit).

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Unit 1: Accounting for Partnership Firms – Basic Concepts

Short Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 2