CUET UG Accountancy Booster Test 1 Nature and Fundamentals of Partnership -

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CUET UG Accountancy Booster Test 1 Nature and Fundamentals of Partnership

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 1 Nature and Fundamentals of Partnership

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QUESTION 1 OF 20

X and Y pool their savings to buy dividend-yielding shares in a public company and divide the dividends equally. They do not run any other trade. Are they partners under the Indian Partnership Act 1932?

Answer Review

1 X and Y pool their savings to buy dividend-yielding shares in a public company and divide the dividends equally. They do not run any other trade. Are they partners under the Indian Partnership Act 1932?

A Yes, because they share financial returns

B No, they are mere co-owners of shares, not carrying on a business

C Yes, pooling money automatically forms a legal partnership

D No, because dividends are strictly not considered profits

💡 Short Explanation

Partnership requires business activity. Mere investment is not partnership. Co-ownership differs from partnership.

✅ Correct Answer Explanation

Partnership exists only when persons carry on business together with profit motive and mutual agency. X and Y are merely investing in shares and dividing dividends. They are not running any business jointly. Hence, they are co-owners and not partners.

❓ Why Other Options Are Incorrect

Option A → Sharing returns alone does not create partnership.
Option C → Pooling money alone is insufficient legally.
Option D → Dividends are profits, but business activity is missing.

🎯 Strategy

Used

Elimination

Application:

�� Check whether actual business activity exists.

Final Logic:

�� No business means no partnership.

🧠 Memory Trick

"Investment ≠ Partnership"

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

2 According to Section 4 of the Indian Partnership Act 1932, which elements must perfectly coexist for a partnership to form?
(i) Relation between persons
(ii) Agreement to share profits of a business
(iii) Business carried on by all or any of them acting for all

A Only (i) and (ii)

B Only (ii) and (iii)

C All (i), (ii), and (iii)

D Only (i)

💡 Short Explanation

Partnership requires persons. Profit-sharing agreement is essential. Mutual agency must exist.

✅ Correct Answer Explanation

Section 4 defines partnership through three essential elements: Relation between persons Agreement to share profits Business carried on by all or any acting for all All conditions are compulsory simultaneously.

❓ Why Other Options Are Incorrect

Option A → Excludes mutual agency.
Option B → Excludes relation between persons.
Option D → Incomplete definition.

🎯 Strategy

Used

Option Grouping

Application:

�� Identify complete legal definition.

Final Logic:

�� Partnership requires all three elements.

🧠 Memory Trick

"Persons + Profit + Mutual Agency"

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

3 While 'A' and 'B' are individually known as partners, how does the business structure view their collective operations when maintaining the books of accounts?

A As a public company

B As separate independent contractors

C As an artificial person with limited liability

D As a firm

💡 Short Explanation

Partners collectively form a firm. Books are maintained in firm name. Firm represents collective identity.

✅ Correct Answer Explanation

Though individuals are called partners, collectively they are known as a firm for accounting purposes. Business transactions are recorded in the firm's books. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Partnership is not a public company.
Option B → Partners jointly operate business.
Option C → Partnership lacks limited liability.

🎯 Strategy

Used

Direct NCERT Recall

Application:

�� Recall collective terminology.

Final Logic:

�� Collective operations are treated as a firm.

🧠 Memory Trick

"Partners Together = Firm"

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

4 Assertion (A): A firm name represents the collective identity of the partners carrying out the business.
Reason (R): The firm name is fundamentally distinct from the partners as it has its own separate legal entity independent of them.

A A is true but R is false

B Both A and R are true and R explains A

C Both A and R are false

D A is false but R is true

💡 Short Explanation

Firm name identifies partners collectively. Partnership has no separate legal entity. Reason is incorrect legally.

✅ Correct Answer Explanation

A firm name merely represents the collective business identity of partners. A partnership firm does not possess a separate legal entity independent from partners. Hence, Assertion is true but Reason is false.

❓ Why Other Options Are Incorrect

Option B → Reason is incorrect.
Option C → Assertion is correct.
Option D → Assertion is true.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Verify separate legal entity concept.

Final Logic:

�� Partnership lacks independent legal existence.

🧠 Memory Trick

"Firm Name ≠ Separate Entity"

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

5 A firm consists of 3 partners. In a tragic accident, two partners pass away. What happens to the legal status of the partnership?

A The remaining partner seamlessly continues the firm

B The firm automatically converts into a company

C The partnership comes to an end as the minimum number of partners must be at least two

D The remaining partner can bring in 50 new partners immediately without a new agreement

💡 Short Explanation

Partnership requires minimum two persons. One person alone cannot continue partnership. Firm dissolves automatically.

✅ Correct Answer Explanation

A valid partnership legally requires at least two persons. If only one partner survives, the partnership ceases to exist. Thus, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → One person cannot constitute partnership.
Option B → Partnership does not automatically become company.
Option D → New agreement is necessary.

🎯 Strategy

Used

Elimination

Application:

�� Apply minimum partner requirement.

Final Logic:

�� Single individual cannot continue partnership.

🧠 Memory Trick

"One Partner = No Partnership"

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

6 Section 464 of the Companies Act 2013 empowers the Central Government to prescribe a maximum number of partners up to 100. However, what is the actual current maximum limit prescribed by the government?

A 10

B 20

C 100

D 50

💡 Short Explanation

Government prescribes partner limit. Current maximum is 50. Beyond this requires company structure.

✅ Correct Answer Explanation

Though the Act allows prescription up to 100, the Central Government currently prescribes 50 as the maximum number of partners. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Old banking business limit.
Option B → Earlier traditional limit.
Option C → Permitted upper ceiling, not actual prescribed limit.

🎯 Strategy

Used

Direct NCERT Recall

Application:

�� Recall present statutory limit.

Final Logic:

�� Current maximum is 50.

🧠 Memory Trick

"50 Partners Maximum"

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

📄 Passage

"Partnership is the result of an agreement between two or more persons to do business and share its profits and losses. The agreement becomes the basis of relationship between the partners. It is not necessary that such agreement is in written form. An oral agreement is equally valid. But in order to avoid disputes, it is preferred that the partners have a written agreement."

Based on the passage, the foundational basis that dictates the relationship between partners is:

A An agreement

B A government mandate

C A court order

D Registration of the firm

💡 Short Explanation

Partnership originates through agreement. Agreement defines relationships. Consent is essential.

✅ Correct Answer Explanation

The passage states clearly that agreement becomes the basis of relationship among partners. Partnership cannot arise without agreement. Thus, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Government mandate is unnecessary.
Option C → Court order does not create partnership.
Option D → Registration is not compulsory.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Use exact concept from passage.

Final Logic:

�� Agreement creates partnership relationship.

🧠 Memory Trick

"Agreement Builds Partnership"

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

📄 Passage

According to the passage, why is a written agreement highly preferred even though an oral one is legally valid?

A Because the Partnership Act makes it strictly mandatory

B In order to avoid disputes among the partners

C To enable higher profit margins legally

D Because the Registrar of Firms bans oral agreements

💡 Short Explanation

Oral agreements are valid. Written agreements reduce disputes. Clarity prevents confusion.

✅ Correct Answer Explanation

The passage explains that written agreements are preferred because they help avoid disputes and misunderstandings among partners. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Written agreements are not mandatory.
Option C → Profit margins are unrelated.
Option D → Oral agreements are legally permitted.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Identify exact reason from passage.

Final Logic:

�� Written agreements help avoid disputes.

🧠 Memory Trick

"Write to Avoid Fights"

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

9 Arrange the following scenarios sequentially from "Definitively Not a Partnership" to "Valid Partnership":
1. Two friends splitting a restaurant bill.
2. Two people jointly purchasing a car for personal transport.
3. Two people buying land, developing it, and selling plots continuously for profit.

A 3, 2, 1

B 1, 3, 2

C 2, 3, 1

D 1, 2, 3

💡 Short Explanation

Splitting bills is not business. Joint ownership is co-ownership. Continuous profit activity forms partnership.

✅ Correct Answer Explanation

Scenario 1 lacks business activity. Scenario 2 represents co-ownership for personal use. Scenario 3 involves continuous business activity with profit motive, creating partnership. Thus, the correct sequence is 1 → 2 → 3.

❓ Why Other Options Are Incorrect

Option A → Reverses logical order.
Option B → Misplaces valid partnership.
Option C → Incorrect arrangement.

🎯 Strategy

Used

Sequential Logic

Application:

�� Arrange situations from no business to active business.

Final Logic:

�� Partnership emerges only with business and profit motive.

🧠 Memory Trick

"Bill → Ownership → Business"

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

10 X and Y inherit a commercial building and share the rent. Later, they decide to actively use part of the building to jointly run a retail store to make a profit. At what exact point do they transition into being partners?

A When they agree to start the retail store business for profit

B When they originally inherited the building

C When they first started sharing the rental income

D They can never become partners if they started as co-owners

💡 Short Explanation

Co-ownership differs from partnership. Partnership begins with business activity. Profit motive is essential.

✅ Correct Answer Explanation

Sharing rental income only creates co-ownership. Partnership starts when they agree to conduct retail business together for profit. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Inheritance creates co-ownership only.
Option C → Rental sharing alone is insufficient.
Option D → Co-owners may later become partners.

🎯 Strategy

Used

Elimination

Application:

�� Identify exact point where business begins.

Final Logic:

�� Partnership begins with business agreement.

🧠 Memory Trick

"Business Starts Partnership"

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

11 If Partner A signs a purchase contract worth Rs. 50,000 on behalf of the firm during the normal course of the agreed business, who is legally bound by this contract?

A Only Partner A

B All the partners of the firm collectively

C None of the partners until a formal vote is taken

D Only the managing partner

💡 Short Explanation

Mutual agency binds all partners. One partner can act for all. Firm is collectively responsible.

✅ Correct Answer Explanation

Under the principle of mutual agency, every partner acts as an agent of the firm and other partners. Therefore, a contract signed by one partner during normal business operations legally binds all partners. Thus, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Liability is not limited to one partner.
Option C → Formal voting is unnecessary for ordinary business acts.
Option D → All partners are bound, not just the managing partner.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Apply mutual agency principle to business transaction.

Final Logic:

�� One partner's valid act binds all partners.

🧠 Memory Trick

"One Signs, All Bound"

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

12 Match the following roles within the context of a mutual agency relationship:

List 1	List 2
1. As a Principal	b. Is bound by the acts of other partners
2. As an Agent	d. Binds other partners by his acts
3. Third Party	a. An outsider dealing with the firm
4. Mutual Agency	c. The core relationship allowing one partner to act for all

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

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

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

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

💡 Short Explanation

Principal is bound by others' acts. Agent binds others through acts. Mutual agency allows acting for all.

✅ Correct Answer Explanation

As a Principal → bound by acts of other partners. As an Agent → binds other partners. Third Party → outsider dealing with firm. Mutual Agency → relationship allowing one partner to act for all. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Principal and third-party roles are mismatched.
Option B → Mutual agency meaning is incorrect.
Option D → Principal role is incorrectly matched.

🎯 Strategy

Used

Option Grouping

Application:

�� Match principal-agent relationships logically.

Final Logic:

�� Correct legal matching gives Option C.

🧠 Memory Trick

"Principal Bound, Agent Binds"

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

13 If an agreement explicitly dictates sharing of profits but categorically exempts a specific partner from bearing any losses, does it invalidate the partnership under the Act?

A No, sharing of loss is implied, but partners are free to agree that a specific partner will not bear losses.

B Yes, all partners must absolutely share losses equally.

C Yes, the Partnership Act forbids exempting any partner from financial losses.

D No, because profits and losses are entirely unrelated in partnerships.

💡 Short Explanation

Loss sharing is generally implied. Partners may modify loss arrangements. Partnership remains valid.

✅ Correct Answer Explanation

The Partnership Act implies sharing of losses where profits are shared. However, partners may mutually agree to exempt a particular partner from losses. Therefore, partnership remains valid and Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Equal loss sharing is not compulsory.
Option C → The Act permits special agreements.
Option D → Profits and losses are legally connected.

🎯 Strategy

Used

Elimination

Application:

�� Remove rigid statements contradicting partnership flexibility.

Final Logic:

�� Partners may customize loss-sharing terms.

🧠 Memory Trick

"Loss Rules Can Be Modified"

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

14 A, B, and C formed a partnership with a deed stating profits will be shared in a 3:2:1 ratio. The deed is completely silent on losses. The firm incurs a loss of Rs. 60,000. How will the loss be shared?

A Equally (Rs. 20,000 each)

B In the profit-sharing ratio of 3:2:1

C A will bear the entire loss as he has the highest ratio

D C will bear the loss as a penalty

💡 Short Explanation

Loss-sharing is implied. Profit ratio applies to losses. Deed silence triggers implied rule.

✅ Correct Answer Explanation

If partnership deed is silent regarding losses, losses are shared in the same ratio as profits. Therefore: A = 30,000 B = 20,000 C = 10,000 Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Equal sharing applies only if no ratio exists.
Option C → Loss cannot be imposed entirely on A.
Option D → Loss is not penalty-based.

🎯 Strategy

Used

Substitution

Application:

�� Apply implied loss-sharing rule to given ratio.

Final Logic:

�� Loss follows profit-sharing ratio.

🧠 Memory Trick

"Profit Ratio = Loss Ratio"

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

15 Consider these statements regarding joint liability:
(i) Each partner is jointly liable with all other partners.
(ii) A creditor has the right to hold any one individual partner responsible for the entire debt of the firm (severally).

A Only (i) is correct

B Only (ii) is correct

C Both (i) and (ii) are correct

D Neither is correct

💡 Short Explanation

Liability is joint and several. Creditors may sue any partner. All partners are legally responsible.

✅ Correct Answer Explanation

Partners are jointly liable together and severally liable individually. A creditor may recover the full debt from any one partner. Therefore, 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 legally valid.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Apply principle of joint and several liability.

Final Logic:

�� Partnership liability is both joint and several.

🧠 Memory Trick

"Together and Individually Liable"

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

16 The concept of "unlimited liability" implies that if the firm's total assets are insufficient to pay off its debts:

A The creditors must simply write off the remaining debts

B The government will step in to pay the remaining debts

C The personal assets of the partners are completely legally protected

D The private assets of the partners can be utilized to pay off the firm's debts

💡 Short Explanation

Liability extends beyond firm assets. Personal assets may be used. Liability is unlimited.

✅ Correct Answer Explanation

Unlimited liability means that if business assets are insufficient, creditors can recover debts from the private assets of partners. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Creditors are not forced to waive debts.
Option B → Government does not assume private business liabilities.
Option C → Personal assets are not protected.

🎯 Strategy

Used

Elimination

Application:

�� Remove statements limiting liability.

Final Logic:

�� Unlimited liability includes personal assets.

🧠 Memory Trick

"Business Debt Reaches Home"

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

17 From an accounting viewpoint, a firm is treated as a separate entity, but strictly from a legal viewpoint:

A It is treated as a registered company

B It has no separate legal entity distinct from its partners

C It is treated as an artificial person

D It has a separate legal entity only in special consumer courts

💡 Short Explanation

Accounting and legal views differ. Partnership lacks separate legal existence. Partners and firm are legally connected.

✅ Correct Answer Explanation

For accounting convenience, a firm is treated separately. However, legally, a partnership firm has no separate legal entity independent from partners. Thus, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Partnership is not a company.
Option C → Artificial person status belongs to companies.
Option D → No such special legal status exists.

🎯 Strategy

Used

Direct NCERT Recall

Application:

�� Recall legal status principle.

Final Logic:

�� Partnership lacks independent legal entity.

🧠 Memory Trick

"Accounting Separate, Legally Connected"

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

18 Assertion (A): The firm name is merely a convenient way of referring to the partners collectively.
Reason (R): A partnership firm itself can own property in its own name completely independent of the partners due to its legal entity status.

A Both A and R are true

B A is false but R is true

C A is true but R is false

D Both A and R are false

💡 Short Explanation

Firm name identifies partners collectively. Partnership lacks legal entity status. Reason is legally incorrect.

✅ Correct Answer Explanation

A firm name is merely a collective identity of partners. Since partnership lacks separate legal entity, the firm cannot independently own property separate from partners. Hence, Assertion is true but Reason is false.

❓ Why Other Options Are Incorrect

Option A → Reason is incorrect.
Option B → Assertion is true.
Option D → Assertion is legally correct.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Verify separate legal entity concept.

Final Logic:

�� Partnership firm lacks independent legal existence.

🧠 Memory Trick

"Firm Name Only Represents Partners"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: No Separate Legal Entity – Page reference may vary by edition.

19 Which among the following combinations forms the absolute essential features of a partnership?
(1) Two or more persons
(2) Written agreement
(3) Sharing of profits
(4) Mutual Agency
(5) Registration

A 1, 2, 3, 4, 5

B 1, 3, 5

C 2, 3, 4, 5

D 1, 3, 4

💡 Short Explanation

Partnership needs persons. Profit sharing is essential. Mutual agency is compulsory.

✅ Correct Answer Explanation

Essential features include: Two or more persons Sharing of profits Mutual agency Written agreement and registration are not compulsory legally. Thus, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Written agreement and registration are not mandatory.
Option B → Mutual agency missing.
Option C → Excludes minimum persons requirement.

🎯 Strategy

Used

Elimination

Application:

�� Remove non-essential statutory conditions.

Final Logic:

�� Partnership fundamentally requires persons, profits, and mutual agency.

🧠 Memory Trick

"Persons + Profit + Mutual Agency"

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

20 Why can one confidently assert that there would be no partnership if mutual agency is absent?

A Because mutual agency ensures every partner is legally bound by the business acts of other partners, creating the principal-agent core.

B Because mutual agency mathematically guarantees equal profit sharing.

C Because without it, the firm's name cannot be registered with the government.

D Because it is an explicit requirement dictated by the Income Tax Act.

💡 Short Explanation

Mutual agency is the essence of partnership. Partners act for one another. Without it, partnership cannot exist.

✅ Correct Answer Explanation

Mutual agency means each partner acts as both principal and agent. Every partner can bind the firm and other partners through business acts. This principal-agent relationship is the defining feature of partnership. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Mutual agency does not guarantee equal profits.
Option C → Registration is unrelated.
Option D → Partnership definition comes from Partnership Act, not Income Tax Act.

🎯 Strategy

Used

Extreme Word Filter

Application:

�� Identify the option expressing the core defining condition.

Final Logic:

�� Mutual agency is indispensable to partnership.

🧠 Memory Trick

"No Mutual Agency = No Partnership"

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

CUET UG Accountancy Booster Test 1 Nature and Fundamentals of Partnership

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