Short Introduction
Partnership firms operate according to the terms agreed upon in the Partnership Deed. When the deed is silent on specific matters, the provisions of the Indian Partnership Act, 1932 are applied. This question tests the application of these provisions in practical situations.
Quick Information Box
| Particular | Details |
|---|---|
| Chapter | Accounting for Partnership: Basic Concepts |
| Topic | Provisions of Partnership Act, 1932 |
| Question Type | Conceptual |
| Difficulty Level | Easy |
| Exam Importance | High |
Concepts Used (Topics Covered)
- Partnership Act, 1932
- Interest on Capital
- Interest on Loan
- Profit Sharing Ratio
- Partner’s Remuneration
- Silent Partnership Deed
Important Formulas
No numerical formula is required in this question.
Important Rules:
- Salary to partner is allowed only if mentioned in the partnership deed.
- Interest on loan is allowed at 6% p.a. if the deed is silent.
- Profits are shared equally if the deed is silent.
- No interest on capital is allowed if the deed is silent.
Question
Mohan and Shyam are partners in a firm. State whether the claim is valid if the partnership agreement is silent in the following matters:
(i) Mohan is an active partner. He wants a salary of Rs. 10,000 per year.
(ii) Shyam had advanced a loan to the firm. He claims interest @ 10% per annum.
(iii) Mohan has contributed Rs. 20,000 and Shyam Rs. 50,000 as capital. Mohan wants equal share in profits.
(iv) Shyam wants interest on capital to be credited @ 6% per annum.
Step-by-Step Solution with Explanation
(i) Salary claimed by Mohan
Given:
- Mohan is an active partner.
- Partnership deed is silent regarding salary.
Rule:
According to the Indian Partnership Act, 1932, no partner is entitled to salary or remuneration unless specifically provided in the partnership deed.
Answer:
The claim is not valid.
(ii) Interest on Loan claimed by Shyam @ 10%
Given:
- Shyam advanced a loan to the firm.
- Deed is silent regarding interest on loan.
Rule:
A partner who gives a loan to the firm is entitled to interest at 6% per annum when the deed is silent.
Answer:
The claim of 10% interest is not valid.
Shyam can claim only 6% per annum.
(iii) Equal Share in Profits claimed by Mohan
Given:
- Capital contribution is unequal.
- Deed is silent regarding profit-sharing ratio.
Rule:
If the partnership deed does not specify a profit-sharing ratio, profits and losses are shared equally.
Answer:
The claim is valid.
Mohan is entitled to an equal share of profits.
(iv) Interest on Capital claimed by Shyam
Given:
- Deed is silent regarding interest on capital.
Rule:
No interest on capital is payable unless expressly agreed upon.
Answer:
The claim is not valid.
Final Answers
| Part | Valid / Invalid | Reason |
| (i) | Invalid | Salary not allowed without agreement |
| (ii) | Invalid | Only 6% interest on loan allowed |
| (iii) | Valid | Profits shared equally when deed is silent |
| (iv) | Invalid | Interest on capital not allowed without agreement |
Common Mistakes
- Confusing interest on loan with interest on capital.
- Assuming active partners automatically receive salary.
- Believing profit share depends on capital contribution.
- Ignoring the provisions of the Partnership Act when the deed is silent.
Exam Tips
- Always remember the difference between interest on capital and interest on loan.
- If the deed is silent, profits are shared equally.
- Interest on partner’s loan is fixed at 6% p.a.
- Salary is allowed only when mentioned in the partnership deed.
Practice MCQs
1. If the partnership deed is silent, profits are shared:
A. In capital ratio
B. Equally
C. In sales ratio
D. As decided by senior partner
Answer: B. Equally
2. Interest on partner’s loan is allowed at:
A. 12% p.a.
B. 10% p.a.
C. 6% p.a.
D. Nil
Answer: C. 6% p.a.
3. Interest on capital is allowed when:
A. Profit exists
B. Capital is large
C. Mentioned in deed
D. Partner demands it
Answer: C. Mentioned in deed
4. Salary to a partner is allowed:
A. Always
B. Only when deed permits
C. When capital exceeds Rs. 1 lakh
D. When partner is active
Answer: B. Only when deed permits
FAQ Section
Q1. Is salary to an active partner compulsory?
No. Salary is allowed only if mentioned in the partnership deed.
Q2. What is the default rate of interest on partner’s loan?
6% per annum.
Q3. Can partners receive interest on capital automatically?
No. It must be expressly agreed upon.
Q4. Are profits shared according to capital contribution if the deed is silent?
No. Profits are shared equally.
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