Q.1 What is the minimum number of persons required to form a partnership?
1
2
3
7
Explanation - A partnership requires at least two persons to come together with a common objective of carrying on business and sharing profits.
Correct answer is: 2
Q.2 What is the maximum number of partners allowed in a banking partnership firm in India?
10
20
50
100
Explanation - According to the Indian Partnership Act, 1932, a banking business cannot have more than 10 partners.
Correct answer is: 10
Q.3 Which document governs the relationship among partners in a partnership firm?
Articles of Association
Memorandum of Association
Partnership Deed
Prospectus
Explanation - The Partnership Deed is the legal document that defines the rights, duties, and obligations of partners.
Correct answer is: Partnership Deed
Q.4 If the partnership deed is silent on profit-sharing ratio, partners share profits:
In proportion to their capital
Equally
According to age
According to experience
Explanation - The Partnership Act provides that in absence of an agreement, profits and losses are shared equally.
Correct answer is: Equally
Q.5 Interest on capital is allowed to partners if:
Business is profitable
Partnership deed allows it
All partners agree verbally
Firm earns high turnover
Explanation - Interest on capital is payable only if the partnership deed specifies so.
Correct answer is: Partnership deed allows it
Q.6 What is the accounting treatment of interest on drawings?
Added to capital
Deducted from partner’s capital/current account
Credited to partner’s account
Treated as expense of firm
Explanation - Interest on drawings is charged to the partner and reduces their capital or current account balance.
Correct answer is: Deducted from partner’s capital/current account
Q.7 Profit and Loss Appropriation Account is prepared to:
Record business expenses
Distribute profits among partners
Record assets and liabilities
Maintain capital account
Explanation - It shows appropriation of profit such as interest on capital, salary, commission, and final distribution.
Correct answer is: Distribute profits among partners
Q.8 When partners maintain fluctuating capital accounts, interest on drawings is:
Credited to Profit and Loss Appropriation A/c
Debited to Profit and Loss A/c
Credited to Current A/c
Transferred to Reserves
Explanation - Interest on drawings is an income for the firm and hence credited to Profit and Loss Appropriation Account.
Correct answer is: Credited to Profit and Loss Appropriation A/c
Q.9 In case of fixed capitals, which account records adjustments for interest, salary, or commission?
Capital Account
Current Account
Drawing Account
Profit and Loss Account
Explanation - When capital is fixed, all adjustments like interest, salary, or commission are passed through Current Accounts.
Correct answer is: Current Account
Q.10 Goodwill in partnership accounts represents:
Tangible asset
Profit earned in cash
Reputation and earning capacity
Extra capital contributed
Explanation - Goodwill is an intangible asset representing the firm’s reputation and ability to earn above-normal profits.
Correct answer is: Reputation and earning capacity
Q.11 When a new partner is admitted, the existing partners sacrifice their share of profits in:
Equal ratio
Gaining ratio
Sacrificing ratio
Capital ratio
Explanation - Existing partners give up a part of their share in profits in the sacrificing ratio for the new partner.
Correct answer is: Sacrificing ratio
Q.12 Sacrificing Ratio = ?
New Ratio – Old Ratio
Old Ratio – New Ratio
Capital Ratio – New Ratio
Old Ratio + New Ratio
Explanation - Sacrificing ratio is calculated as Old Ratio – New Ratio to determine the share given up by existing partners.
Correct answer is: Old Ratio – New Ratio
Q.13 On admission of a partner, goodwill brought in cash is:
Debited to Goodwill A/c
Credited to New Partner’s Capital A/c
Credited to Old Partners’ Capital A/c in sacrificing ratio
Transferred to Reserve
Explanation - Goodwill premium is credited to old partners’ capital accounts in their sacrificing ratio.
Correct answer is: Credited to Old Partners’ Capital A/c in sacrificing ratio
Q.14 Revaluation Account is prepared at the time of:
Only at dissolution
Only at admission
Admission, retirement, or death of a partner
Distribution of profit
Explanation - Revaluation account records changes in assets and liabilities whenever the firm is reconstituted.
Correct answer is: Admission, retirement, or death of a partner
Q.15 When a partner retires, goodwill adjustment is made in:
Capital Accounts of partners
Cash Account
Profit and Loss Account
Revaluation Account
Explanation - Goodwill adjustment is made through capital accounts in the gaining ratio of remaining partners.
Correct answer is: Capital Accounts of partners
Q.16 Gaining Ratio = ?
Old Ratio – New Ratio
New Ratio – Old Ratio
Capital Ratio – Old Ratio
Sacrificing Ratio – New Ratio
Explanation - The gaining ratio is the difference between the new profit-sharing ratio and the old ratio of continuing partners.
Correct answer is: New Ratio – Old Ratio
Q.17 Which account is prepared to determine the amount payable to a retiring partner?
Revaluation Account
Profit and Loss Appropriation Account
Retiring Partner’s Capital Account
Current Account
Explanation - The retiring partner’s capital account shows final settlement after adjustments of goodwill, revaluation, and reserves.
Correct answer is: Retiring Partner’s Capital Account
Q.18 In case of death of a partner, his share of goodwill is:
Written off against reserves
Transferred to remaining partners’ capital in gaining ratio
Paid to legal representatives
Debited to Profit and Loss A/c
Explanation - On death, the deceased partner’s share of goodwill is credited to his capital account and paid to his legal heirs.
Correct answer is: Paid to legal representatives
Q.19 What is the treatment of Joint Life Insurance Policy (JLP) premium when it is treated as an asset?
Debited to P&L A/c
Shown in Balance Sheet at surrender value
Credited to Revaluation A/c
Transferred to Capital A/c
Explanation - When JLP is treated as an asset, it is recorded at its surrender value in the Balance Sheet.
Correct answer is: Shown in Balance Sheet at surrender value
Q.20 Which of the following is NOT an essential feature of a partnership?
Agreement between persons
Sharing of profits
Limited liability
Business carried on jointly
Explanation - In partnership, liability of partners is unlimited, unlike in a company where it can be limited.
Correct answer is: Limited liability
Q.21 What happens to the partnership firm on the death of a partner?
It is automatically dissolved unless otherwise agreed
It continues forever
It converts into a company
It must be sold to outsiders
Explanation - A firm is dissolved on a partner’s death unless the deed specifies continuation.
Correct answer is: It is automatically dissolved unless otherwise agreed
Q.22 In partnership accounts, salary to a partner is shown in:
Trading A/c
Profit and Loss A/c
Profit and Loss Appropriation A/c
Balance Sheet
Explanation - Partner’s salary is an appropriation of profit, not an expense, hence recorded in P&L Appropriation A/c.
Correct answer is: Profit and Loss Appropriation A/c
Q.23 Which method is NOT used for valuation of goodwill?
Average Profit Method
Super Profit Method
Capitalization Method
Depreciation Method
Explanation - Depreciation method is not used; goodwill is valued using average, super profit, or capitalization methods.
Correct answer is: Depreciation Method
Q.24 What type of liability do partners have in a partnership firm?
Unlimited
Limited
Joint but not several
None
Explanation - Partners are jointly and severally liable, and their liability is unlimited.
Correct answer is: Unlimited
Q.25 In the absence of an agreement, partners are entitled to:
Commission
Interest on capital
Equal share in profits
Salary
Explanation - The Partnership Act specifies equal profit-sharing in absence of any agreement.
Correct answer is: Equal share in profits