UNIT 4

Q1. In the absence of partnership deed, interest on capital is allowed at the rate of:
a) 6% p.a. simple interest

b) 6% p.a. compound interest

c) 12% simple interest

d) None of the above.

Q2. Rent to a partner is shown in:

a) Dr. side of Profit and Loss Appropriation A/c

b) Cr. side of Profit and Loss Appropriation A/c

c) Dr. side of Profit and Loss A/c

d) Cr. side of Profit and Loss A/c.

Q3. Which of the following items will be shown in Partner’s Capital A/c under Fixed
Capital method?
a) Drawings from profits

b) Drawings from capital

c) Interest on drawings

d) All of the above.

Q4. Interest on Partner’s Loan will be credited to:

a) Partner’s Loan A/c

b) Partner’s Capital A/c

c) Profit and Loss A/c

d) None of the above.

Q5. Which one of the following items is not an appropriation out of profits?
a) Interest on capital

b) Salary to a partner

c) Commission to a partner
d) Interest on partner’s loan.

Q6. Following are essential elements of a partnership firm except:

a) At least two persons

b) There is an agreement between all partners

c) Equal share of profits and losses

d) Partnership agreement is for some lawful business activity. Q7. Which one of
the following is not a right of a partner?
a) Right to inspect the books of the firm

b) Right to take part in the affairs of the company

c) Right to share the profits/losses of the firm

d) Right to receive salary at the end of each month. Q8. The relation of partner
with the firm is that of:
a) An owner

b) An agent

c) An owner and agent both

d) A manager.

Q9 Pick the odd one out:

a) Rent to a partner

b) Manager’s commission

c) Interest on partner’s loan

d) Interest on partner’s capital.

Q10. Can a partner be exempted to share the losses of the firm?

a) Yes

b) No

c) Yes, if partnership deed provides so

d) Never.

Q11. In case of partnership, the act of any partner is:

a) Binding on all partners
b) Binding on that partner only.

c) Binding on all partners except that particular partner

d) None of the above.

Q12. Interest on capital will be paid to the partners if provided for in the partnership
deed but only out of:
a) Profits

b) Reserves

c) Accumulated profits

d) Goodwill.

Q13. What is the minimum number of partners in a partnership firm?

a) 50
b) 100
c) 2

d) None of the above.

Q14. Current accounts of partners are maintained under which method?

a) Fluctuating Capital method

b) Fixed Capital method

c) Both of the above

d) None of the above.

Q15. Limited Liability Partnerships came into existence in India after the enactment
of:
a) Indian Partnership Act, 1932

b) Limited Liability Partnership Act, 1932

c) Limited Liability partnership Act, 2008

d) Indian companies Act, 2013.

CCT Based MCQs

Q16. A and B are partners sharing profits and losses equally. They admitted C as a
partner with an equal share giving him a guarantee of minimum ₹50,000 profit p.a.
 The profit for the year after C’s admission was ₹1,20,000. What will be the net
amount that will be credited to A’s Capital A/c?
a) ₹50,000
b) ₹40,000
c) ₹35,000
d) ₹80,000.
Q17 If a partner withdraws an equal amount in the beginning of each month for a
period of 10 months, what will be the average period for calculation of Interest on
Drawings?
a) 6.5 months

b) 7.5 months

c) 6 months

d) 5.5 months.

Q18. X and Y are partners sharing profits and losses in the ratio of 3:2 with capitals
₹5,00,000 each. According to partnership deed, interest on capital is allowed @ 10%
p.a. The profit for the year is ₹ 50,000. What amount will be credited to X and Y in
such condition?
a) ₹50,000 to A and B each

b) ₹25,000 to A and B each

c) ₹30,000 to A and ₹20,000 to B

d) None of the above.
Q19. Manager is entitled to a commission of 10% of the net profits after charging
such commission. The net profit for the year is ₹1,32,000. What will be the amount of
manager’s commission?
a) ₹13,200

b) ₹12,000
c) ₹10,000
 d) None of the above.
Q20. P and Q are partners sharing profits and losses in the ratio of 2:1 with capitals
₹1,00,000 and
₹80,000 respectively. The interest on capital has been provided to them @ 8%
instead of 10%. In the rectifying adjustment entry, Q will be:
a) Debited by ₹400

b) Credited by ₹400

c) Debited by ₹1600

d) Credited by ₹1600.

Q21. Akhil and Ravi are partners sharing profits and losses in the ratio of 7:3 with
capitals of
₹8,00,000 and ₹6,00,000 respectively. According to partnership deed interest on
capital is to be provided @ 8% p.a. and is to be treated as a charge. Profit for the year
is ₹80,000. Choose the correct option:
a) A will be credited by ₹ 64,000 and B will be credited by ₹ 48,000.

b) A will be credited by ₹ 56,000 and B will be credited by ₹ 24,000.

c) A will be credited by ₹ 22,400 and B will be credited by ₹ 9,600.

d) A will be credited by ₹ 41,600 and B will be credited by ₹ 38,400.

Q22. X, Y and Z are partners sharing profits and losses equally. Their capitals on
March 31, 2021 are
₹80,000; ₹60,000; ₹40,000 respectively. Their personal assets are worth as follows: X-
₹20,000; Y -
₹15,000 and Z- ₹10,000. The extent of their liability in the firm would be: a) X- ₹80,000;
Y- 60,000; Z- ₹40,000
b) X- ₹20,000; Y- 15,000; Z- ₹10,000
c) X- ₹1,00,000; Y- 75,000; Z- ₹50,000
d) Equal.
 Q23. A and B are partners. B draws a fixed amount at the end of every month.
Interest on drawings is charged @15% p.a. At the end of the year interest on B’s
drawings amounted to ₹8,250. Drawings of B were:
a) ₹12,000 p.m.
b) ₹10,000 p.m.
c) ₹9,000 p.m.
d) ₹8,000 p.m.
Q24. Mohit and Rohit were partners in a firm with capitals of ₹80,000 and ₹40,000
respectively. The firm earned a profit of ₹30,000 during the year. Mohit's share in the
profit will be:
a) Rupees 20000

b) Rupees 15000

c) Rupees 10000

d) Rupees 18000.

Q25. R and S are partners sharing profits in the ratio of 2:1. S has advanced a loan of
₹1,00,000 to the firm on 1st October, 2020. The net profit earned by the firm for the
year ending 31st March, 2021 is ₹ 90,000. What amount will be credited to S’s capital
account?
a) ₹60,000
b) ₹30,000
c) ₹29,000
d) ₹32,000.

Match the following based MCQs

Q26.
I Interest on Capital A Cr. Side of Profit and Loss
Appropriation A/c
II Interest on Drawings B Dr. side of Profit and Loss
 Appropriation A/c
II Interest on Partner’s C Dr. side of Profit and Loss A/c
I Loan
a) I-A; II-B; III-C

b) I-B; II-A; III-C

c) I-C; II-B; III-A

d) I-B; II-C; III-A Q27.

I Rent paid to a partner A Charge against profits
II Salary paid to a partner B Appropriations out of profits.
II Partner’s Commission
I
a) I-A; II-B; III-B

b) I-A; II-A; III-B

c) I-A; II-B; III-A

d) I-B; II-A; III-B Q28.

I Maximum number of A 6% p.a.
partners
II Partnership Deed B 50
II Interest on partner’s loan C Written agreement
I
a) I-A; II-B; III-C

b) I-B; II-A; III-C

c) I-C; II-B; III-A

d) I-B; II-C; III-A Q29.

I Drawings in the beginning of A 4.5
each quarter
II Drawings in the beginning of B 6.5
each month
II Drawings in the end of each C 7.5
 I quarter
a) I-A; II-B; III-C

b) I-B; II-A; III-C

c) I-C; II-B; III-A

d) I-B; II-C; III-A Q30.

I One who takes part in A Dormant partner
business activities
II One who does not take part B Nominal partner
in business activities
II One who lends his name to C Active partner
I a partnership firm but
actually is not a partner of
the firm.
a) I-A; II-B; III-C

b) I-B; II-A; III-C

c) I-C; II-B; III-A

d) I-C; II-A; III-B.

Case Study Based Questions

Read the following information carefully and answer the questions that follow:
X and Y are partners in 3:2. Their capital balances as on 1st April 2020 amounting to
₹2,00,000 each. On 1st February, 2021, X contributed an additional capital of
₹1,00,000. Following are the terms of deed:
a) Interest on capital @ 6% per annum

b) Interest on drawings @ 8% per annum

c) Salary to X ₹1500 per month

d) Commission to Y @10% on net profit after charging interest on capital, salary and his

commission.
Drawings of the partners were ₹20,000 and ₹30,000 respectively during the year. Net
profit earned by the firm was ₹2,08,000.

Choose the correct option based on the above information:

Q31. What is the amount of Interest on capitals of X and Y:
a) ₹12,000 each
b) ₹12,000 to X and ₹ ₹13,000 to Y
c) ₹13,000 to X and ₹12,000 to Y
d) None of the above.

Q32. What is the amount of interest on drawings of X and Y:

a) ₹ 1200 and ₹ 1800 respectively

b) ₹ 800 and ₹ 1200 respectively

c) ₹ 1200 and ₹ 800 respectively

d) ₹ 1600 ₹ 2400 respectively

Q33. What is the amount of commission payable to Y? a) ₹ 15000

b) ₹ 16500
c) ₹ 20800
d) None of these
Q34. What is X's share in the net divisible profit? a) ₹ 124400
b) ₹ 83600
c) ₹ 91200
d) ₹ 60800
Q35. What will be the closing capital of X after all adjustments? a) ₹ 422200
b) ₹ 401400
 c) ₹ 300000
d) ₹ 423000

Read the following information carefully and answer the questions that follow:
A, B and C were partners sharing profits in the ratio of 1:2:3. Their fixed capitals on 1 st
April, 2020 were: A ₹3,00,000; B ₹4,50,000 and C ₹10,00,000. Their partnership deed
provided the following:
i. A provides his personal office to the firm for business use charging yearly rent of
₹1,50,000.
ii. Interest on capitals @8% p.a. and interest on drawings @ 10% p.a.
iii. A was allowed a salary @ 10,000 per month.

iv. B was allowed a commission of 10% of net profit as shown by Profit and Loss account,

after charging such commission.

v. C was guaranteed a profit of ₹3,00,000 after making all adjustments.

The net profit for the year ended 31st march, 2021 was ₹10,30,000 before making
above adjustments.
You are informed that A has withdrawn ₹5,000 in the beginning of each month, B has
withdrawn
₹5,000 at the end of each month and C has withdrawn ₹ 24,000 in the beginning of
each quarter.
Choose the correct option based on the above information:
Q36. A’s rent will be shown in:
a) Profit and loss account

b) Profit and Loss Appropriation account

c) A’s Capital account

d) None of the above.

Q37. Net profit for the year is:
 a) ₹10,30,000
b) ₹11,80,000
c) ₹7,30,000
d) ₹8,80,000
Q38. What will be the divisible profit? a) ₹5,56,000
b) ₹5,50,000
c) ₹5,52,000
d) ₹5,53,000.
Q39. What will be the total interest on drawings? a) ₹24,000
b) ₹12,000
c) ₹36,000
d) 48,000.
Q40. What will be the commission of B? a) ₹8,00,000
b) ₹96,000
c) ₹80,000
d) ₹72,000.
Assertion-Reasoning Based questions
Q41. Assertion (A): In the absence of Partnership deed profits and losses are divided
equally among the partners.
Reason(R): This rule is applicable according to Indian partnership Act, 1932.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)

b) Both (A) and (R) are true and (R) is not the correct explanation of (A)

c) (A) is true, bur (R) is false

d) (A) is false, but (R) is true.

Q42. Assertion (A): Personal properties of a partner may also be used to pay off the
firm’s debts.
Reason(R): All partners have limited liability in the firm.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)
b) Both (A) and (R) are true and (R) is not the correct explanation of (A)

c) (A) is true, but (R) is fals

d) (A) is false, but (R) is true.

Q43. Assertion (A): Partnership firm is a form of organisation where two or more
persons carry on business activity on the basis of agreement among them.
Reason(R): The profit or loss arising from the partnership business is shared by the
partners in the agreed ratio.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)

b) Both (A) and (R) are true and (R) is not the correct explanation of (A)

c) (A) is true, but (R) is false

d) (A) is false, but (R) is true.

Q44. Assertion (A): Maximum number of partners in a partnership firm is 50.

Reason(R): Maximum number of partners in a partnership firm is prescribed in
Companies Act, 2013.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)

b) Both (A) and (R) are true and (R) is not the correct explanation of (A)

c) (A) is true, but (R) is false

d) (A) is false, but (R) is true.

Q45. Assertion (A): A partnership deed covers all matters relating to mutual
relationship among the partners.
Reason(R): But in the absence of partnership deed, provisions of the Indian
partnership Act, 1932 shall apply for accounting purposes.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)

b) Both (A) and (R) are true and (R) is not the correct explanation of (A)

c) (A) is true, but (R) is false

d) (A) is false, but (R) is true.

Q46. Assertion (A): Rent to partner is not shown in Profit and Loss Appropriation
Account.
 Reason(R): Rent to a partner is a charge against profit..
a) Both (A) and (R) are true and (R) is the correct explanation of (A)

b) Both (A) and (R) are true and (R) is not the correct explanation of (A)

c) (A) is true, but (R) is false

d) (A) is false, but (R) is true.

Q47. Assertion (A): Interest on Partner’s capital may be shown in Profit and Loss
Account.
Reason(R): If Partners treat interest on capital as a charge.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)

b) Both (A) and (R) are true and (R) is not the correct explanation of (A)

c) (A) is true, but (R) is false

d) (A) is false, but (R) is true.

Q48. Assertion (A): Rent payable to partner is credited to Partner’s Capital account.
Reason(R): Rent is payable to partner for letting the firm use his personal property for
business.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)

b) Both (A) and (R) are true and (R) is not the correct explanation of (A)

c) (A) is true, but (R) is false

d) (A) is false, but (R) is true.

Q49. Assertion (A): For calculating Interest on Drawings, product method is used.
Reason(R): Partners withdraw different amounts of money at different intervals of
time.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)

b) Both (A) and (R) are true and (R) is not the correct explanation of (A)

c) (A) is true, but (R) is false

d) (A) is false, but (R) is true.

Q50. Assertion (A): Guarantee of minimum profit may be given to a partner.

Reason(R): It is compulsory as per Indian Partnership Act, 1932.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)

b) Both (A) and (R) are true and (R) is not the correct explanation of (A)

c) (A) is true, but (R) is false

d) (A) is false, but (R) is true.

Q.NO Answe Reason/Hint/

. r Explanation
1 D Interest on Capital is not allowed if there is no partnership deed.
2 C Rent to a partner is a charge against profit.

3 B Under Fixed Capital method only Withdrawal from capital and

Introduction of Capital are shown in Capital account, all other
items are shown in Current account.
4 A Interest on Partner’s Loan is not shown in Partner’s Capital
account, it is credited in Partner’s Loan A/c.
5 D It is a Charge against profit.
6 C Profits are divided in the ratio decided by partners in partnership
deed.
7 D Salary is payable only if it is mentioned in partnership deed.
8 C All the partners are mutual agents of each other and of the firm
also and they are also the owners of the firm.
9 D Interest on Capital is an appropriation out of profits whereas all
other items are charges against profit.
10 C Unless mentioned in the partnership deed, all partners are liable
to share the losses and profits of the firm.
11 A Since all partners are mutual agents of each other and of the
company also.
12 A Since Interest on capital is an appropriation out of profits, so it
 is paid only out of profits.
13 C As per Indian Partnership Act, 1932, minimum 2 partners are
necessary to start a partnership firm.
14 B Under Fixed Capital method Capital accounts and Current
accounts both are maintained whereas under Fluctuating capital
method only capital accounts are maintained.
15 C Limited Liability Partnership Act was passed in India in the year
2008.
16 C Share of A in profit= 40,000 less Deficiency paid to C=5,000. So
net amount received by A=35,000.
17 D Time left after first drawing=10 months; Time left after last
drawing=1 month; (10+1)/2=5.5
18 B Interest payable to A and B=50,000 each. So the profit will be
divided in an equal ratio between A and B. When appropriations
are more than profits then the available profit is distributed
between the partners in the ratio of net amount payable to them.
19 B 1,32,000*10/110=12,000.
20 B Q will be credited by ₹1,600 (interest@2% to be given to Q) and
Q will be debited by ₹1,200(share of Q in loss to the firm). So,
finally Q will be credited by ₹400.
21 D IOC to Akhil= ₹64,000 less share of loss= ₹22,400
(32,000*7/10). Net amount paid to Akhil= ₹41,600.
IOC to Ravi= ₹48,000 less share of loss= ₹9,600 (32000*3/10).
Net amount paid to Ravi= ₹38,400.
22 B A partner has unlimited liability in the partnership firm. So he has
to pay the
amount of capital plus his personal property to pay off the debts of
the firm.
Since partners have already paid the amount of capital so now
they will have to pay only their personal assets to the firm in case
 of loss.
23 B 8,250*(100/15)*(12/5.5) =1,20,000/12= 10,000.
24 B In the absence of partnership Deed, profits are shared equally
among the partners.
25 C Net profit of the firm=90,000-3,000(interest on loan) = 87,000.
S’s share in profit=87,000*1/3= 29,000. Only share of profit is
credited to Partner’s Capital a/c, interest on loan is credited to
Partner’s Loan A/c.
26 B IOC is transferred to Dr. side of P& L Appropriation A/c; IOD to
Cr. Side of P & L Appropriation A/c and Interest on Partner’s
Loan to the Dr. side of P & L A/c.
27 A Rent paid to a partner is a charge against profit; Salary and
commission paid to a partner are both appropriations out of
profits.
28 D Maximum no. of partners is 50 as per Indian Partnership Act,
1932. Partnership Deed may be an oral or written agreement
among partners. Interest on partner’s loan is allowed @ 6% p.a.
in the absence of partnership deed.
29 C Average period for drawings in beginning of each quarter is 7.5;
for beginning of each month is 6.5 and for end of each quarter is
4.5. Formula for calculating average period = (Time left after first
drawing +Time left after last drawing)/2
30 D Check the definitions.
31 C IOC to X= (2,00,000*6/100)+(1,00,000*6/100*2/12)= 13,000
IOC to Y= 2,00,000*6/100= 12,000
32 B IOD will be calculated for an average period of six months since
time of
drawings is not given.
33 A 2,08,000-13,000-12,000(IOC)-18,000(salary)= 1,65,000*10/110=
15,000.
34 C Divisible profit= 2,08,000(N.P.)+800+1,200(IOD)-13,000-
12,000(IOC)-
18,000(salary)-15,000(commission)= 1,52,000. Share of X in
divisible profit= 1,52,000* 3/5= 91,200
35 B Closing capital of X= 2,00,000(opening capital)+1,00,000(addl.
capital)+13,000(IOC)+18,000(salary)+91,200(profit share)-
20,000(drawings)- 800(IOD)= 4,01,400.
36 A Charge against profit is shown in P & L A/c.
37 D 10,30,000-1,50,000(rent to the partner)= 8,80,000
38 B IOD for A=
60,000*10/100*6.5/12=3,250 IOD
for
B=60,000*10/100*5.5/12=2,750
IOD for
C=16,000*10,100*7.5/12=6,000.
Total IOD= 3,250+2,750+6,000= 12,000.
39 C 8,80,000*10/110= 80,000.
40 C 8,80,000(N.P.)+12,000(IOD)-24,000-36,000-80,000(IOC)-
80,000(commission)-1,20,000(salary)= 5,52,000.
41 A In the absence of partnership Deed, profits are shared equally
among the partners, as per the provisions of Indian
partnership act, 1932.
42 C All partners have unlimited liability.
43 B Both the statements are two different facts.
44 C Maximum number of partners is 50 according to Indian
partnership Act, 1932 and 100 as per Indian Companies Act,
2013.
45 B Both the statements are two different facts.

46 A Charge against profit is shown in P & L account.

47 A Charge against profit is shown in P & L account.
48 D Rent payable to partner is not shown in Capital account; it is
shown in Rent payable account.
49 A Both the statements are true and R is the correct explanation of A.
50 C Guarantee of minimum profit to a partner depends on mutual
consent of partners, it is not compulsory.