CUET UG Accountancy Booster Test 1 Partnership Deed and Legal Provisions -

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CUET UG Accountancy Booster Test 1 Partnership Deed and Legal Provisions

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Accountancy Booster Test 1 Partnership Deed and Legal Provisions

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QUESTION 1 OF 20

Evaluate the definition of partnership. Which elements are explicitly stated?
I. Partnership is a relation between persons who agree to share profits of a business.
II. The business must be carried on by all or any of them acting for all.

Answer Review

1 Evaluate the definition of partnership. Which elements are explicitly stated?
I. Partnership is a relation between persons who agree to share profits of a business.
II. The business must be carried on by all or any of them acting for all.

A Only I is correct

B Only II is correct

C Both I and II are correct

D Both are incorrect

💡 Short Explanation

Partnership involves profit sharing. Mutual agency is essential. Both statements define partnership correctly.

✅ Correct Answer Explanation

The Indian Partnership Act defines partnership as a relation between persons agreeing to share profits of a business carried on by all or any acting for all. Hence, both statements are correct.

❓ Why Other Options Are Incorrect

Option A → Statement II is also correct.
Option B → Statement I is also correct.
Option D → Both statements are valid.

🎯 Strategy

Used

Statement Verification

Application:

�� Compare statements with legal definition.

Final Logic:

�� Both elements are essential components.

🧠 Memory Trick

"Profit + Mutual Agency = Partnership"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Definition of Partnership – Page reference may vary by edition.

2 Assertion (A): The partnership deed outlines the objective of the business and capital contributions.
Reason (R): It serves as the definitive document detailing all aspects affecting the relationship between the partners.

A Both A and R are true and R is the correct explanation of A

B Both A and R are true but R is not the correct explanation

C A is true, R is false

D A is false, R is true

💡 Short Explanation

Partnership deed contains important terms. It regulates partner relationships. Reason explains assertion properly.

✅ Correct Answer Explanation

The partnership deed records business objectives, capital contributions, rights, duties, and all terms affecting partners' relationships. Hence, both Assertion and Reason are true and Reason correctly explains Assertion.

❓ Why Other Options Are Incorrect

Option B → Reason directly explains assertion.
Option C → Reason is true.
Option D → Assertion is also true.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Verify explanatory relationship.

Final Logic:

�� Deed is the primary governing document.

🧠 Memory Trick

"Deed Defines Relationship"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Purpose of Deed – Page reference may vary by edition.

3 Two partners have a major dispute regarding interest on capital. Their partnership agreement was completely oral and did not mention an interest rate. Under the Partnership Act, what rule applies?

A Interest is granted at 6% p.a.

B Interest is granted at 10% p.a.

C Interest is granted equal to the profit margin

D No interest on capital is payable

💡 Short Explanation

Interest requires agreement. Silence means no entitlement. Default provisions apply.

✅ Correct Answer Explanation

Under the Indian Partnership Act, no interest on capital is payable unless specifically agreed among partners. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → 6% applies to partner's loan, not capital.
Option B → No statutory 10% provision exists.
Option C → Profit margin irrelevant.

🎯 Strategy

Used

Direct NCERT Recall

Application:

�� Recall default legal provisions.

Final Logic:

�� No agreement means no interest.

🧠 Memory Trick

"No Clause = No Interest"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Interest on Capital – Page reference may vary by edition.

4 Why is it highly recommended to draft the deed properly and prepare it as per the provisions of the 'Stamp Act'?

A It ensures the business will never fail financially

B It provides proper legal validity and helps avoid future disputes

C It eliminates the need for any partners to be actively involved

D It makes the firm's profits completely tax-free

💡 Short Explanation

Proper deed ensures legal validity. Reduces future misunderstandings. Protects partner interests.

✅ Correct Answer Explanation

A properly drafted deed under Stamp Act provisions ensures enforceability, legal validity, and prevention of disputes among partners. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Deed cannot guarantee success.
Option C → Partners must still participate.
Option D → No automatic tax exemption exists.

🎯 Strategy

Used

Elimination

Application:

�� Remove unrealistic claims.

Final Logic:

�� Legal validity and dispute prevention are key purposes.

🧠 Memory Trick

"Proper Deed Prevents Disputes"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Importance of Written Deed – Page reference may vary by edition.

5 Match the standard contents of a deed with their correct contextual purpose:

List 1	List 2
1. Names and Addresses of the firm	a. Defines the core commercial activity
2. Names and Addresses of all partners	b. Identifies the legal identity and location of the business entity
3. Nature of Business	c. Marks the operational starting point of the partnership
4. Date of Commencement	d. Records the individual identities of the members

A 1-b, 2-d, 3-a, 4-c

B 1-d, 2-b, 3-a, 4-c

C 1-c, 2-a, 3-d, 4-b

D 1-a, 2-c, 3-b, 4-d

💡 Short Explanation

Firm details identify business. Partner names identify members. Nature defines business activity.

✅ Correct Answer Explanation

Correct matching: Firm name/address → Legal identity Partner details → Member identities Nature of business → Commercial activity Commencement date → Starting point Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Firm and partner identities reversed.
Option C → Incorrect sequence.
Option D → Nature of business mismatched.

🎯 Strategy

Used

Option Grouping

Application:

�� Match deed contents logically.

Final Logic:

�� Proper contextual pairing gives Option A.

🧠 Memory Trick

"Firm, Partners, Business, Start"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Contents of Deed – Page reference may vary by edition.

6 Rohit and Sachin jointly purchase a plot of land. They do not conduct any business of purchase and sale of land for profit, but just co-own it. Are they partners?

A Yes, it functions as a joint venture

B Yes, if they share the property taxes equally

C No, mere co-ownership of property does not amount to partnership

D No, because partnerships require at least 3 people

💡 Short Explanation

Co-ownership alone is insufficient. Business activity is necessary. Profit motive must exist.

✅ Correct Answer Explanation

Partnership requires business carried on for profit. Mere co-ownership of property without business activity does not create partnership. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Joint ownership is not partnership.
Option B → Sharing taxes irrelevant.
Option D → Minimum partners required are two.

🎯 Strategy

Used

Conceptual Distinction

Application:

�� Differentiate partnership from co-ownership.

Final Logic:

�� Business element is missing.

🧠 Memory Trick

"Co-Ownership ≠ Partnership"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Nature of Business – Page reference may vary by edition.

7 X and Y form a partnership. X introduces Rs 3,00,000 on April 1. On July 1, X introduces additional capital of Rs 50,000. Interest on capital is allowed @ 8% p.a. What is the total interest payable to X at the end of the financial year (March 31)?

A Rs 24,000

B Rs 27,000

C Rs 28,000

D Rs 22,000

💡 Short Explanation

Main capital gets full-year interest. Additional capital gets 9 months' interest. Total interest is combined.

✅ Correct Answer Explanation

Interest on Rs 3,00,000: 300000 × 8% = 24000 Interest on additional Rs 50,000 for 9 months: 50000 × 8% × (9/12) = 3000 Total Interest: 24000 + 3000 = 27000 300000 × (8/100) + 50000 × (8/100) × (9/12) = 27000 Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Ignores additional capital interest.
Option C → Overcalculation.
Option D → Incorrect computation.

🎯 Strategy

Used

Substitution

Application:

�� Calculate separately for each capital period.

Final Logic:

�� Add both interest components.

🧠 Memory Trick

"Separate Time, Separate Interest"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Capital Contribution Details – Page reference may vary by edition.

8 What is the rule/formula used to determine the average period for calculating interest on drawings when a fixed amount is withdrawn exactly in the middle of every month?

A 5.5 months

B 6.5 months

C 7.5 months

D 6 months

💡 Short Explanation

Mid-month withdrawals use average period. Standard average is 6 months. Common accounting convention.

✅ Correct Answer Explanation

When equal drawings are made in the middle of every month, the average period used for interest calculation is 6 months. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → End-of-month withdrawals.
Option B → Beginning-of-month withdrawals.
Option C → Incorrect average.

🎯 Strategy

Used

Direct NCERT Recall

Application:

�� Recall standard average periods.

Final Logic:

�� Mid-month average = 6 months.

🧠 Memory Trick

"Middle Month = 6"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Accounting Period – Page reference may vary by edition.

9 Rules regarding the operation of Bank Accounts are explicitly detailed in the Partnership Deed to ensure:

A Compliance with Reserve Bank of India mandates only

B The bank can independently audit the firm

C Clear understanding of authorization, signing powers, and operational limits

D Partners are prohibited from depositing cash

💡 Short Explanation

Bank rules clarify authority. Signing powers are predefined. Operational disputes are avoided.

✅ Correct Answer Explanation

The partnership deed specifies operational rules relating to authorization, signing powers, and banking limits for smooth management. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → RBI compliance alone is insufficient.
Option B → Banks do not independently audit firms.
Option D → Cash deposits are permitted.

🎯 Strategy

Used

Elimination

Application:

�� Identify operational purpose.

Final Logic:

�� Banking clarity ensures smooth functioning.

🧠 Memory Trick

"Bank Rules in Deed"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Operational Rules – Page reference may vary by edition.

10 Arrange the chronological sequence of establishing a partnership framework under standard legal procedures:
1. Officially commencing business operations
2. Drafting the Partnership Deed in writing
3. Reaching an initial mutual agreement
4. Registering the Deed with the Registrar of Firms

A 1, 2, 3, 4

B 4, 3, 2, 1

C 2, 3, 1, 4

D 3, 2, 4, 1

💡 Short Explanation

Agreement comes first. Deed is drafted next. Registration follows. Business starts afterward.

✅ Correct Answer Explanation

Correct sequence: Mutual agreement Drafting deed Registration Commencement of operations Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Business cannot start before agreement.
Option B → Registration cannot precede drafting.
Option C → Agreement should precede drafting.

🎯 Strategy

Used

Sequential Logic

Application:

�� Arrange partnership formation steps.

Final Logic:

�� Agreement precedes formalities.

🧠 Memory Trick

"Agree → Draft → Register → Start"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Commencement Date – Page reference may vary by edition.

11 Madhulika, Rakshita, and Kanishka share profits in a 2:3:1 ratio. The firm's profit is Rs 1,20,000. Kanishka was admitted with a guaranteed minimum profit of Rs 25,000. What is Kanishka's final allocated share of the profit?

A Rs 25,000

B Rs 20,000

C Rs 24,000

D Rs 30,000

💡 Short Explanation

Normal share falls below guarantee. Guaranteed amount must be given. Deficiency adjusted among others.

✅ Correct Answer Explanation

Normal share of Kanishka: 120000 × (1/6) = 20000 Guaranteed minimum = Rs 25,000 Since guaranteed amount exceeds normal share, Kanishka receives Rs 25,000. 120000 × (1/6) = 20000 Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Normal share only.
Option C → Incorrect calculation.
Option D → Excess guarantee.

🎯 Strategy

Used

Ratio Substitution

Application:

�� Compare guaranteed and normal shares.

Final Logic:

�� Higher guaranteed amount prevails.

🧠 Memory Trick

"Guarantee Protects Minimum Profit"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Profit Sharing Ratio – Page reference may vary by edition.

12 A firm suffers a net loss of Rs 75,000. The deed specifies the profit sharing ratio among Y, M, and V as 2:2:1. How is this loss officially shared?

A Shared equally at Rs 25,000 each

B Y bears Rs 30,000, M bears Rs 30,000, and V bears Rs 15,000

C No loss is shared until profits are made

D The loss is fully absorbed by the partner with the highest capital

💡 Short Explanation

Loss shared in agreed ratio. Total ratio = 5 parts. Individual shares calculated proportionately.

✅ Correct Answer Explanation

Loss sharing: Y = (75000 × (2/5)) = 30000 M = (75000 × (2/5)) = 30000 V = (75000 × (1/5)) = 15000 75000 × (2/5) = 30000 Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Ignores agreed ratio.
Option C → Loss must be shared immediately.
Option D → Capital contribution irrelevant here.

🎯 Strategy

Used

Ratio Substitution

Application:

�� Apply loss-sharing ratio.

Final Logic:

�� Divide according to agreed proportion.

🧠 Memory Trick

"Loss Follows Profit Ratio"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Loss Sharing Rules – Page reference may vary by edition.

13 Consider the following regarding interest on capital:
I. Interest on capital is an automatic right payable to all partners regardless of the deed.
II. It is generally provided when partners contribute unequal amounts but share profits equally.

A Only I is correct

B Both I and II are incorrect

C Only II is correct

D Both I and II are correct

💡 Short Explanation

Interest is not automatic. It compensates unequal capital contribution. Agreement is necessary.

✅ Correct Answer Explanation

Statement I is incorrect because interest on capital requires agreement. Statement II is correct because interest is often used when partners contribute unequal capital but share profits equally. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Statement I false.
Option B → Statement II true.
Option D → Statement I incorrect.

🎯 Strategy

Used

Statement Verification

Application:

�� Evaluate each statement separately.

Final Logic:

�� Interest depends on deed.

🧠 Memory Trick

"Unequal Capital Needs Compensation"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Interest on Capital – Page reference may vary by edition.

14 Assertion (A): No partner is automatically entitled to get a salary for participating in the firm's business unless there is a provision in the deed.
Reason (R): The Partnership Act treats standard business conduct as a mutual duty of partners without separate remuneration unless contracted otherwise.

A Both A and R are true and R is the correct explanation of A

B Both A and R are true but R is not the correct explanation

C A is true, R is false

D A is false, R is true

💡 Short Explanation

Business participation is mutual duty. Salary requires agreement. Reason explains assertion correctly.

✅ Correct Answer Explanation

Under the Partnership Act, participating in business is a normal duty of partners. Therefore, salary is not automatically payable unless specifically agreed. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Reason directly explains assertion.
Option C → Reason is true.
Option D → Assertion also true.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Check explanatory connection.

Final Logic:

�� Salary depends on contract.

🧠 Memory Trick

"Duty Does Not Mean Salary"

📚 Passage 2 (NCERT text on Default Legal Provisions) "Normally, the partnership deed covers all matters affecting relationship of partners amongst themselves. However, if there is no express agreement on certain matters, the provisions of the Indian Partnership Act, 1932 shall apply. If the partnership deed is silent about the profit sharing ratio, the profits and losses of the firm are to be shared equally by partners, irrespective of their capital contribution in the firm."

15 Based on the passage, when do the default provisions of the Indian Partnership Act, 1932 become actively applicable?

A They constantly override the deed in all circumstances

B Only when the firm undergoes legal dissolution

C Only when the capital accounts are fixed

D When there is no express agreement on certain matters in the deed

💡 Short Explanation

Deed governs normally. Default rules fill gaps. Silence activates Act provisions.

✅ Correct Answer Explanation

The passage clearly states that the default provisions apply only when there is no express agreement on certain matters. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Deed has primary authority.
Option B → Dissolution unrelated.
Option C → Fixed capital irrelevant.

🎯 Strategy

Used

Passage-Based Extraction

Application:

�� Identify exact legal condition.

Final Logic:

�� Silence in deed activates default rules.

🧠 Memory Trick

"No Agreement = Act Applies"

16 According to the passage, if Partner A contributes Rs 5,00,000 and Partner B contributes Rs 1,00,000, and their deed lacks a profit-sharing clause, how are profits allocated?

A In a 5:1 ratio

B Shared equally between A and B

C In the exact ratio of their annual drawings

D Entirely to Partner A as the highest contributor

💡 Short Explanation

Silence means equal sharing. Capital contribution ignored. Default rule applies.

✅ Correct Answer Explanation

If the deed lacks a profit-sharing clause, profits are shared equally irrespective of capital contribution. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Capital ratio not automatic.
Option C → Drawings irrelevant.
Option D → Highest contributor gets no automatic advantage.

🎯 Strategy

Used

Passage-Based Extraction

Application:

�� Apply default equal-sharing rule.

Final Logic:

�� Absence of clause means equal profits.

🧠 Memory Trick

"No Ratio = Equal Share"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Profit Sharing Terms – Page reference may vary by edition.

17 Which document specifically outlines the pre-agreed rules to be followed in cases of the admission, retirement, or death of a partner?

A The Partnership Deed

B The bank's operational mandates

C The national Income Tax Act

D The firm's annual Audit Report

💡 Short Explanation

Deed contains future contingency rules. Admission and retirement are predefined. Avoids disputes later.

✅ Correct Answer Explanation

The Partnership Deed includes rules regarding admission, retirement, and death of partners for smooth continuity. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Banking rules unrelated.
Option C → Tax Act not concerned.
Option D → Audit report records financial review only.

🎯 Strategy

Used

Direct NCERT Recall

Application:

�� Recall contents of deed.

Final Logic:

�� Deed governs special situations.

🧠 Memory Trick

"Deed Handles Future Changes"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Admission and Retirement – Page reference may vary by edition.

18 Two partners vehemently disagree on profit sharing. One insists it must be based on their unequal capital contributions, while the other demands equal shares. They have no written deed. How is this dispute legally settled?

A The partner with the majority capital dictates the terms

B The most active working partner decides

C Profits are shared equally as per the provisions of the Act

D The business is automatically dissolved

💡 Short Explanation

No deed means equal sharing. Capital difference irrelevant. Default provisions settle dispute.

✅ Correct Answer Explanation

When there is no agreement regarding profit sharing, the Indian Partnership Act mandates equal sharing among partners. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Capital dominance not recognized.
Option B → Activity level irrelevant.
Option D → Disagreement does not dissolve firm automatically.

🎯 Strategy

Used

Legal Provision Recall

Application:

�� Apply default equal-sharing rule.

Final Logic:

�� Equal sharing resolves dispute.

🧠 Memory Trick

"No Deed = Equal Need"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Dispute Settlement – Page reference may vary by edition.

19 A fundamental element of the mutual agency relationship means that every partner has an inherent right to:

A Earn 10% interest on capital without an agreement

B Participate in the conduct of the affairs of its business

C Receive a fixed monthly salary regardless of profits

D Borrow unlimited firm funds for personal use

💡 Short Explanation

Mutual agency allows participation. Every partner can represent firm. Core feature of partnership.

✅ Correct Answer Explanation

Mutual agency gives every partner the right to participate in conducting business and bind the firm through actions. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Interest requires agreement.
Option C → Salary not automatic.
Option D → Personal borrowing not allowed freely.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Recall meaning of mutual agency.

Final Logic:

�� Participation is inherent partnership right.

🧠 Memory Trick

"Mutual Agency = Shared Authority"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Partner Rights – Page reference may vary by edition.

20 Evaluate the following statements concerning a partner's legal liability:
I. A partner's liability is strictly limited to the extent of their capital contribution.
II. Partners are jointly and severally liable to third parties for acts of the firm.

A Only I is true

B Both I and II are true

C Neither statement is true

D Only II is true

💡 Short Explanation

Partnership liability is unlimited. Partners are jointly liable. Statement I is incorrect.

✅ Correct Answer Explanation

Statement I is false because partnership liability is unlimited. Statement II is correct because partners are jointly and severally liable to third parties. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Statement I false.
Option B → Limited liability incorrect.
Option C → Statement II true.

🎯 Strategy

Used

Statement Verification

Application:

�� Compare legal liability rules.

Final Logic:

�� Unlimited liability applies in partnership.

🧠 Memory Trick

"Partnership = Unlimited Liability"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Partner Liabilities – Page reference may vary by edition.

CUET UG Accountancy Booster Test 1 Partnership Deed and Legal Provisions

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Answer Review