Accounting for Partnership: Basic Concepts, Class 12 Notes and Solved Questions

What Accounting for Partnership: Basic Concepts is about

Weightage: This chapter is part of Part A: Accounting for Partnership Firms, which carries 36 of the 80 theory marks together with Reconstitution of a Partnership Firm – Admission of a Partner, Reconstitution of a Partnership Firm – Retirement/Death of a Partner and Dissolution of Partnership Firm.Source: CBSE Accountancy (055) syllabus 2026-27, Part A: Accounting for Partnership Firms

In real board papers: asked in 2 of the 2 board papers we hold (2026 to 2026), on average 6.5 marks per paper. See the questions

Key concepts

Partnership and its features

NCERT section 1.1

Section 4 of the Indian Partnership Act, 1932 treats a partnership as a relationship among people who agree to share the profit of a business that is run by all of them, or by any one of them on behalf of all. Pull out the features from that idea:

• Two or more persons: the Companies Act 2013 lets the government fix the maximum, and it has been set at 50 partners.
• Agreement: oral or written; a written one is the partnership deed.
• Business: a lawful business must be carried on. Joint owners of a house who share rent are not partners.
• Mutual agency: every partner is an agent of the firm and of the other partners, so an act of one binds all. Without mutual agency there is no partnership.
• Sharing of profit: the purpose is to share profit; sharing of loss follows unless agreed otherwise.
• Unlimited liability: partners are jointly and severally liable, so a partner's private assets can be used to pay the firm's debts.

Worked example

Suppose Ira and Kabir jointly inherit a shop building and divide the rent from it equally. Ira also runs a bakery in the building, and Kabir gives her ₹50,000 on the condition that he gets 20% of the bakery's profit, but he takes no part in decisions. Are Ira and Kabir partners? Give reasons. [3 marks]

Try it first, then show the solutionSolution

1. Rent-sharing: owning property jointly and sharing its income is co-ownership, not a business carried on by them, so this alone does not make them partners.
2. Bakery: Kabir shares profit, but sharing profit is evidence, not proof. The test is whether the business is carried on by all or any of them acting for all (mutual agency).
3. Kabir has no authority to act for the bakery and Ira does not act for him; the ₹50,000 is in the nature of a loan with a profit-linked return.

Answer: No. There is co-ownership of the building and a profit-linked loan to Ira's bakery, but no mutual agency, so there is no partnership.

Partnership deed and the rules when it is silent

NCERT section 1.2, 1.2.1

The partnership deed is the written agreement. It usually records the firm's name and business, the partners, capital contributed, the accounting period, the profit sharing ratio, rates of interest on capital, drawings and loans, salaries and commission, rights and duties, and rules for admission, retirement, death, dissolution and settling disputes.

When the deed is silent (or there is no deed), the Indian Partnership Act, 1932 applies:

• Profits and losses are shared equally, whatever the capitals.
• No interest on capital.
• No interest on drawings.
• Interest on a partner's loan at 6% p.a.
• No salary or commission for working in the business.

The Act also says that a partner who makes a private profit from a firm transaction, or runs a competing business, must hand that profit over to the firm.

Worked example

Suppose Neel and Ojas have no partnership deed. Neel contributed ₹4,00,000 and Ojas ₹1,00,000. On 1st April 2025 Ojas also lent ₹80,000 to the firm and claims interest at 12% p.a. Profit for the year ended 31st March 2026 before considering this claim is ₹1,04,800. Divide the profit. [3 marks]

Try it first, then show the solutionSolution

1. Deed silent, so interest on loan is at 6% p.a.: ₹80,000 × 6/100 = ₹4,800. This is a charge, debited to Profit and Loss Account and credited to Ojas's Loan Account.
2. Profit after interest on loan = ₹1,04,800 − ₹4,800 = ₹1,00,000.
3. No interest on capital is allowed and profit is shared equally, not in the capital ratio 4 : 1.

Answer: Ojas gets ₹4,800 interest on loan (not ₹9,600); the profit of ₹1,00,000 is shared ₹50,000 each.

Fixed and fluctuating capital accounts

NCERT section 1.4, 1.4.1

Under the fixed capital method each partner has two accounts. The capital account changes only for additional capital introduced or capital permanently withdrawn, so it always shows a credit balance. Everything else (interest on capital, salary, commission, share of profit or loss, drawings and interest on drawings) goes to the partner's current account, which can show a debit or credit balance. Both appear in the balance sheet.

Under the fluctuating capital method there is only the capital account, and every item above is posted to it, so the balance keeps changing and can even turn debit.

If a question does not say which method, use the fluctuating method. If it says "capitals are fixed", open current accounts.

Worked example

Suppose Pia's capital on 1st April 2025 was ₹3,00,000. During the year: interest on capital ₹18,000, salary ₹24,000, share of profit ₹40,000, drawings ₹30,000, interest on drawings ₹900. Find the closing balances (a) if capitals are fixed, (b) if capitals are fluctuating. [3 marks]

Try it first, then show the solutionSolution

1. (a) Fixed: capital account stays at ₹3,00,000. Current account: Cr 18,000 + 24,000 + 40,000 = 82,000; Dr 30,000 + 900 = 30,900; balance = ₹51,100 (Cr).
2. (b) Fluctuating: ₹3,00,000 + 82,000 − 30,900 = ₹3,51,100 (Cr).
3. Check: 3,00,000 + 51,100 = 3,51,100, the same total claim in both methods.

Answer: (a) Capital ₹3,00,000 and current account ₹51,100 (Cr). (b) Capital ₹3,51,100 (Cr).

Profit and Loss Appropriation Account and interest on capital

NCERT section 1.5.1, 1.5.2

The Profit and Loss Appropriation Account starts with the net profit from the Profit and Loss Account (after charges such as interest on a partner's loan). It is credited with that profit and with interest on drawings, and debited with interest on capital, salary and commission to partners, and finally the share of profit of each partner.

Interest on capital is calculated on the opening capital for the whole year, plus interest on additional capital from the date it came in, minus interest on capital withdrawn from the date it went out. If opening capital is not given, work it back from the closing capital: closing capital + drawings − profit credited − additional capital.

Because interest on capital is an appropriation:

• Loss: no interest on capital at all.
• Profit smaller than the interest due: the whole profit is given as interest, shared in the ratio of the interest amounts, and nothing is left to share in the profit ratio.
• Deed says interest is a charge: allow it in full even if this creates a loss, and share that loss in the profit sharing ratio.

Worked example

Suppose Asha and Bimal share profits 3 : 2 with capitals of ₹4,00,000 and ₹2,00,000. The deed allows interest on capital at 10% p.a. Profit for the year is ₹45,000. Calculate the interest on capital and pass the journal entry. [3 marks]

Try it first, then show the solutionSolution

1. Interest due: Asha ₹40,000, Bimal ₹20,000; total ₹60,000.
2. Profit (₹45,000) is less than the interest due, so interest is limited to ₹45,000, divided in the ratio of interest due, 40,000 : 20,000 = 2 : 1.
3. Asha ₹30,000, Bimal ₹15,000. Nothing is left to share in 3 : 2.

4. Particulars	Dr (₹)	Cr (₹)
   Profit and Loss Appropriation A/c ... Dr	45,000
   To Asha's Capital A/c		30,000
   To Bimal's Capital A/c		15,000
   (Being interest on capital allowed to the extent of profit)

Answer: Interest on capital: Asha ₹30,000 and Bimal ₹15,000; the whole profit is used up.

Interest on drawings: product method and average period

NCERT section 1.5.3

Interest on drawings is charged only if the deed provides for it, and only for the time the money was out of the business.

• Uneven dates: use the product method. Multiply each drawing by the months left to the year-end, add the products, then interest = sum of products × rate/100 × 1/12.
• Equal amounts at regular intervals: use the average period. Interest = total drawings × rate/100 × average period/12.
• Date not given: charge for 6 months on the total.

Average periods for a 12-month year: monthly at the beginning 6.5 months, in the middle 6, at the end 5.5; quarterly at the beginning 7.5 months, in the middle 6, at the end 4.5. In general, average period = (months for the first drawing + months for the last drawing) ÷ 2.

If the rate is given as "x% per annum", always scale for time; if it is a flat "x%", charge it on the total without time.

Worked example

Suppose Rohan withdrew ₹6,000 at the end of every month from April 2025 to March 2026. Interest on drawings is 10% p.a. Find the interest. [1 mark]

Try it first, then show the solutionSolution

1. Total drawings = ₹6,000 × 12 = ₹72,000. Drawing at the end of each month: first drawing out for 11 months, last for 0, so average = (11 + 0) ÷ 2 = 5.5 months.
2. Interest = 72,000 × 10/100 × 5.5/12 = ₹3,300.

Answer: ₹3,300

Guarantee of profit to a partner

NCERT section 1.6

Sometimes a partner (often a new one) is promised a minimum share of profit. First divide the profit in the normal ratio. If the guaranteed partner's share is less than the guaranteed amount, the deficiency is borne by the partners who gave the guarantee: in the agreed ratio, or in their own profit sharing ratio if no ratio is given. If only one partner gave the guarantee, that partner alone bears it.

In the appropriation account, show each giving partner's share as "share − deficiency borne" and the guaranteed partner's as "share + deficiency". The total must still equal the divisible profit.

Worked example

Suppose Kavi, Leena and Mehul share profits 2 : 2 : 1, and Mehul is guaranteed a minimum profit of ₹60,000, any deficiency to be borne by Kavi and Leena in 3 : 2. Net profit for 2025-26 is ₹2,00,000. Prepare the Profit and Loss Appropriation Account. [4 marks]

Try it first, then show the solutionSolution

1. Normal shares: Kavi ₹80,000, Leena ₹80,000, Mehul ₹40,000.
2. Deficiency = ₹60,000 − ₹40,000 = ₹20,000; Kavi bears 3/5 = ₹12,000, Leena 2/5 = ₹8,000.
3. Profit and Loss Appropriation Account for the year ended 31st March 2026

   Dr: Particulars	₹	Cr: Particulars	₹
   To Kavi's Capital A/c (80,000 − 12,000)	68,000	By Profit and Loss A/c (net profit)	2,00,000
   To Leena's Capital A/c (80,000 − 8,000)	72,000
   To Mehul's Capital A/c (40,000 + 20,000)	60,000
   Total	2,00,000	Total	2,00,000

Answer: Kavi ₹68,000, Leena ₹72,000, Mehul ₹60,000 (total ₹2,00,000).

Past adjustments

NCERT section 1.7

If, after the accounts are closed and the profit has been distributed, you find that something was left out (interest on capital or drawings, salary, commission, a wrong profit sharing ratio), the old accounts are not reopened. Instead one adjustment entry puts each partner where he would have been.

Use an adjustment table: for each partner, credit what he should have received (interest on capital, salary, commission), debit what he should have been charged (interest on drawings), then reverse the net amount in the old profit sharing ratio (the profit he received in excess). The net column always adds to zero. Debit the partners with a negative net and credit those with a positive net. If capitals are fixed, the entry goes through current accounts.

Worked example

Suppose Nitin, Ojas and Pari share profits 2 : 2 : 1 with fixed capitals of ₹3,00,000, ₹2,00,000 and ₹1,00,000. After the accounts for 2025-26 were closed, it was found that interest on capital at 10% p.a. and Pari's salary of ₹12,000 had been omitted. Pass the single adjustment entry. [4 marks]

Try it first, then show the solutionSolution

1. 	Nitin	Ojas	Pari	Total
   Interest on capital (Cr)	30,000	20,000	10,000	60,000
   Salary (Cr)			12,000	12,000
   Should have received (Cr)	30,000	20,000	22,000	72,000
   Less excess profit taken, 72,000 in 2 : 2 : 1 (Dr)	28,800	28,800	14,400	72,000
   Net	1,200 Cr	8,800 Dr	7,600 Cr	0

2. Particulars	Dr (₹)	Cr (₹)
   Ojas's Current A/c ... Dr	8,800
   To Nitin's Current A/c		1,200
   To Pari's Current A/c		7,600
   (Being omitted interest on capital and salary adjusted)

Answer: Ojas's Current A/c Dr ₹8,800; Nitin's Current A/c Cr ₹1,200; Pari's Current A/c Cr ₹7,600.

Interest on a partner's loan: a charge, not an appropriation

NCERT section 1.5, 1.2.1

A loan from a partner is an outside liability of the firm, so interest on it is a charge against profit: it is debited to the Profit and Loss Account (not the appropriation account) and credited to the Partner's Loan Account. It is payable whether the firm earns a profit or makes a loss. The rate is what the deed says; if the deed is silent, 6% p.a., for the period the loan was outstanding. The syllabus states this rule explicitly, so expect it in MCQs.

By contrast, if the firm lends to a partner, interest on that loan is income of the firm, credited to the Profit and Loss Account.

Worked example

Suppose Tanvi lent ₹2,00,000 to the firm on 1st October 2025. The deed is silent on interest on loans. The firm's profit for the year ended 31st March 2026 before this interest is ₹4,000. Find the interest and the profit (or loss) to be appropriated. [1 mark]

Try it first, then show the solutionSolution

1. Interest = 2,00,000 × 6/100 × 6/12 = ₹6,000, payable even though it exceeds the profit.
2. Profit and Loss Account: ₹4,000 − ₹6,000 = loss of ₹2,000, which goes to the appropriation stage and is shared in the profit sharing ratio.

Answer: Interest ₹6,000; a loss of ₹2,000 is shared by the partners.

Accounting for Partnership: Basic Concepts in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Topics in this chapter

• Profit and Loss Appropriation Account
• Interest on Drawings
• Past Adjustments in Partnership

Accounting for Partnership: Basic Concepts: key facts

Interest on capital

Opening capital × rate × 12/12 + additional capital × rate × months/12 − capital withdrawn × rate × months/12

Months are counted from the date of the change to the year-end.

Opening capital (when only closing is given)

Closing capital + drawings − profit share and other credits − additional capital + losses debited

Undo every entry made during the year.

Interest on drawings (product method)

Σ(amount × months to year-end) × rate/100 × 1/12

Interest on drawings (average period)

Total drawings × rate/100 × average period/12; average period = (months for first + months for last) ÷ 2

Monthly: beginning 6.5, middle 6, end 5.5. Quarterly: beginning 7.5, middle 6, end 4.5. Date not known: 6 months.

Commission after charging such commission

Net profit before commission × r/(100 + r)

Commission on profit before charging it is simply r% of profit.

Interest on capital when profit is insufficient

Profit available × partner's interest due ÷ total interest due

Loss: no interest on capital (unless the deed treats it as a charge).

Interest on partner's loan (deed silent)

Loan × 6/100 × months outstanding/12

Charge: debit Profit and Loss A/c, credit Partner's Loan A/c.

Guarantee deficiency

Deficiency = guaranteed amount − actual share; borne by the guaranteeing partners in the agreed ratio

How the board asks Accounting for Partnership: Basic Concepts

The question patterns to expect, and the method that works for each.

Tricks to remember Accounting for Partnership: Basic Concepts

Short memory aids. Say each one aloud once, then use it on a question the same day.

• SIP-D for the deed-silent rules

  Sharing equal, Interest on capital none (and none on drawings), Pay (salary) none, Debt (loan) 6%.

  Use it when: Any question that says "the deed is silent".

• 6.5 / 6 / 5.5 and 7.5 / 6 / 4.5

  Monthly: start, middle, end = 6.5, 6, 5.5. Quarterly: 7.5, 6, 4.5. The middle is always 6.

  Use it when: Average period for interest on drawings.

• Charge goes up, appropriation goes down

  Charges (loan interest, rent to a partner) sit above the line in the P&L Account; appropriations (interest on capital, salary, commission, share) sit below it in the appropriation account.

  Use it when: Deciding where an item goes.

• Zero-sum table

  In past adjustments, the net column always adds to zero. If it does not, an arithmetic slip is hiding.

  Use it when: Checking a past-adjustment answer.

Accounting for Partnership: Basic Concepts: board-level solved questions

Ordered from board level to HOTS. Cover the solution, write your own, then compare step by step.

Case-study practice (Section E style)

Read the situation, then answer every part. In the board paper this is a 4-mark question split into 1 + 1 + 2 marks.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Where students lose marks in Accounting for Partnership: Basic Concepts

The slips examiners see most often, and what to write instead.

• ✗Mistake: Putting interest on a partner's loan in the appropriation account

  It looks like interest on capital.

  Wrong working

  P&L Appropriation A/c Dr 3,000 To Rhea's Capital A/c 3,000

  Right working

  Profit and Loss A/c Dr 3,000 To Rhea's Loan A/c 3,000

  ✓Do this: Loan interest is a charge: P&L Account, credited to the loan account.

  Usually costs: 1 mark in an MCQ; 1-2 marks in a 6-mark question because the divisible profit goes wrong.

• ✗Mistake: Allowing full interest on capital when profit is too small

  Forgetting it is an appropriation.

  Wrong working

  Interest ₹60,000 credited; loss ₹15,000 shared 3 : 2

  Right working

  Interest limited to ₹45,000, shared 2 : 1 (ratio of interest)

  ✓Do this: Compare profit with total interest first. Only treat interest as a charge if the deed says so.

  Usually costs: 2 of 3 marks.

• ✗Mistake: Using 6 months for every drawing

  Remembering only the "date not given" rule.

  ✓Do this: Check the timing: beginning 6.5, middle 6, end 5.5 (monthly); 7.5, 6, 4.5 (quarterly).

  Usually costs: 1 mark.

• ✗Mistake: Posting salary and interest to capital accounts when capitals are fixed

  Habit from fluctuating method.

  ✓Do this: Fixed capitals: every item except capital introduced or withdrawn goes to the current account.

  Usually costs: 1-2 marks in the accounts.

• ✗Mistake: Making separate entries in a past-adjustment question that asks for a single entry

  Not netting the adjustment table.

  ✓Do this: Build the table, net each partner, and pass one entry; the net column must total zero.

  Usually costs: Up to 2 marks.

• ✗Mistake: Charging the guarantee deficiency to all partners

  Missing who gave the guarantee.

  ✓Do this: Only the guaranteeing partners bear it, in the agreed ratio (or their own ratio if none is given).

  Usually costs: 1-2 marks.

NCERT exercise guide: Accounting for Partnership: Basic Concepts

What each exercise in the NCERT chapter tests, how to approach it, and a question of the same kind solved step by step. Questions here are written in our own words.

Accounting for Partnership: Basic Concepts: previous year questions

• Asked in 2 of the 2 board papers we hold (2026 to 2026), on average 6.5 marks per paper; 10 questions in all, counting OR alternatives. In 4 of 4 sample papers.

Counted from the real papers on our previous year papers page, not estimated. Average marks are over every board paper we hold, with an OR pair counted once. Chapter tags are ours.

Solved board questions from Accounting for Partnership: Basic Concepts

Real questions from recent papers. Try each one first, then open our step-by-step solution with marks per step.

Every Accounting for Partnership: Basic Concepts question, by year

Practice questions on Accounting for Partnership: Basic Concepts

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

1. Q1 · 1 mark · MCQBoard level

   In the absence of a partnership deed, a partner who has lent money to the firm is entitled to interest at:
   (a) 12% p.a.
   (b) 6% p.a.
   (c) bank rate
   (d) nil

   Hint

   Indian Partnership Act, 1932.

   Answer

   (b) 6% p.a.

2. Q2 · 1 mark · MCQBoard level

   If the partnership deed is silent, profits are shared:
   (a) in the capital ratio
   (b) equally
   (c) in the ratio of work done
   (d) as decided by the senior partner

   Hint

   Act provision.

   Answer

   (b) equally

3. Q3 · 3 marks · Short answerBoard level

   State two differences between fixed and fluctuating capital accounts.

   Hint

   Number of accounts; nature of balance.

   Answer

   Fixed: two accounts per partner (capital and current), capital balance always credit, changes only with capital introduced or withdrawn. Fluctuating: one account, all adjustments posted to it, balance changes every year and may become debit.

4. Q4 · 3 marks · Short answerBoard level

   Suppose a partner withdrew ₹20,000 on 1st June 2025, ₹30,000 on 1st October 2025 and ₹10,000 on 1st January 2026. Interest is 12% p.a. and the year ends on 31st March 2026. Calculate interest on drawings by the product method.

   Hint

   Months to year-end: 10, 6, 3.

   Answer

   Products: 2,00,000 + 1,80,000 + 30,000 = 4,10,000. Interest = 4,10,000 × 12/100 × 1/12 = ₹4,100.

5. Q5 · 3 marks · Short answerHarder board level

   Suppose A, B and C share profits 3 : 2 : 1. C is guaranteed a minimum profit of ₹40,000 by A alone. The profit is ₹1,50,000. Show the distribution of profit.

   Hint

   Only the guarantor bears the deficiency.

   Answer

   Normal shares 75,000, 50,000, 25,000; deficiency 15,000 borne by A. A ₹60,000, B ₹50,000, C ₹40,000.

6. Q6 · 3 marks · Short answerHarder board level

   Suppose Tara's capital on 1st April 2025 was ₹2,00,000. She introduced ₹50,000 more on 1st October 2025 and withdrew ₹20,000 of capital on 1st January 2026. Interest on capital is 10% p.a. Calculate interest on her capital for the year ended 31st March 2026.

   Hint

   Add interest on the addition; subtract interest on the withdrawal.

   Answer

   20,000 + (50,000 × 10% × 6/12 = 2,500) − (20,000 × 10% × 3/12 = 500) = ₹22,000.

7. Q7 · 4 marks · Short answerHarder board level

   Suppose the capital accounts of Uma and Vir on 31st March 2026 showed ₹3,40,000 and ₹2,10,000 after crediting profit of ₹1,20,000 in 2 : 1 and debiting drawings of ₹40,000 and ₹30,000. Vir had introduced ₹50,000 of capital on 1st October 2025. Calculate interest on capital at 10% p.a.

   Hint

   Work back to the opening capital first.

   Answer

   Opening: Uma 3,40,000 + 40,000 − 80,000 = ₹3,00,000; Vir 2,10,000 + 30,000 − 40,000 − 50,000 = ₹1,50,000. Interest: Uma ₹30,000; Vir 15,000 + 2,500 = ₹17,500.

8. Q8 · 3 marks · Short answerHOTS / competency

   Suppose X and Y shared profits equally for two years (profits ₹1,20,000 and ₹1,80,000), though the deed provided 3 : 2. Pass the adjustment entry.

   Hint

   Compare received with due.

   Answer

   Due: X ₹1,80,000, Y ₹1,20,000; received ₹1,50,000 each. Y's Capital A/c Dr ₹30,000 To X's Capital A/c ₹30,000.

9. Q9 · 1 mark · MCQHarder board level

   A manager-partner is entitled to a commission of 10% of net profit after charging such commission. Net profit before commission is ₹3,30,000. The commission is:
   (a) ₹33,000
   (b) ₹30,000
   (c) ₹36,300
   (d) ₹27,000

   Hint

   r/(100 + r).

   Answer

   (b) ₹30,000 (3,30,000 × 10/110).

10. Q10 · 1 mark · Assertion-reasonHOTS / competency

    Assertion (A): Interest on capital is not allowed in a year of loss even if the deed provides for it.
    Reason (R): Interest on capital is an appropriation of profit.
    (a) Both true and R explains A (b) Both true, R does not explain A (c) A true, R false (d) A false, R true

    Hint

    What does an appropriation need?

    Answer

    (a). Note: if the deed calls it a charge, it would be allowed even in a loss.

11. Q11 · 6 marks · Long answerHarder board level

    Suppose Jai, Kiran and Lalit share profits 3 : 2 : 1. Jai lent ₹2,00,000 to the firm at the start of the year (deed silent on interest). Kiran gets a salary of ₹24,000 a year. Lalit is guaranteed ₹50,000; any deficiency is borne by Jai and Kiran in 3 : 2. Profit before interest on Jai's loan is ₹2,52,000. Prepare the Profit and Loss Appropriation Account.

    Hint

    Loan interest is charged before the appropriation account.

    Answer

    Interest on loan 2,00,000 × 6% = ₹12,000 (charge); net profit ₹2,40,000; after salary ₹2,16,000; normal shares 1,08,000, 72,000, 36,000; deficiency 14,000 borne 8,400 and 5,600.

    Profit and Loss Appropriation Account for the year ended 31st March 2026

    Dr: Particulars	₹	Cr: Particulars	₹
    To Kiran's Capital A/c (salary)	24,000	By Profit and Loss A/c (net profit after interest on loan)	2,40,000
    To Jai's Capital A/c (1,08,000 − 8,400)	99,600
    To Kiran's Capital A/c (72,000 − 5,600)	66,400
    To Lalit's Capital A/c (36,000 + 14,000)	50,000
    Total	2,40,000	Total	2,40,000

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1. 1.What is the maximum number of partners in a firm?Show answer

   50, as prescribed under the Companies Act 2013.

2. 2.Where is interest on a partner's loan recorded?Show answer

   Debited to the Profit and Loss Account and credited to the partner's loan account; it is a charge.

3. 3.What is the average period for drawings made at the end of each quarter?Show answer

   4.5 months.

4. 4.What happens to interest on capital in a loss year?Show answer

   It is not allowed, unless the deed treats it as a charge.

5. 5.Under the fixed capital method, where is the share of profit credited?Show answer

   To the partner's current account.

6. 6.What is the formula for commission after charging such commission?Show answer

   Net profit before commission × r/(100 + r).

7. 7.Who bears a guarantee deficiency when one partner alone gave the guarantee?Show answer

   That partner alone.

8. 8.Why is mutual agency called the real test of partnership?Show answer

   Because a business is a partnership only if it is carried on by all or any of the partners acting for all.

Quick revision checklist

The night before the exam: can you do each of these without looking?

• ☐Can you state the features of partnership and explain mutual agency?
• ☐Can you list the deed-silent rules, including 6% p.a. on a partner's loan?
• ☐Can you open current accounts when capitals are fixed?
• ☐Can you work out opening capital from closing capital?
• ☐Can you limit interest on capital when profit is too small?
• ☐Can you choose the average period (6.5, 6, 5.5; 7.5, 6, 4.5) quickly?
• ☐Can you calculate commission after charging such commission?
• ☐Can you put loan interest in the P&L Account, not the appropriation account?
• ☐Can you split a guarantee deficiency between the right partners?
• ☐Can you pass a single past-adjustment entry from a zero-sum table?

Accounting for Partnership: Basic Concepts: frequently asked questions