Here are the answers to the Partnership Viva Questions:
1. What is the maximum number of partners allowed in a partnership firm?
- As per the Companies Act, 2013, the maximum number of partners is:
- 50 for general business partnerships.
2. What is the difference between partnership and joint venture?
| Partnership | Joint Venture |
|---|---|
| Continuous business relationship. | Temporary association for a specific project. |
| Governed by the Partnership Act. | No specific law governs it. |
| Partners share profits and losses. | Profit/loss is divided as per agreement. |
3. What do you mean by partnership at will?
A partnership at will is one where the partnership continues until a partner gives notice to dissolve it. No fixed duration is mentioned.
4. Can a minor be admitted into a partnership firm?
- Yes, a minor can be admitted only for the benefits of the partnership.
- They cannot be made liable for the firm’s debts.
5. What are the essential features of a partnership?
- Agreement between two or more persons.
- Sharing of profits and losses.
- Business carried on by all partners or any partner acting as an agent.
- Mutual agency between partners.
- Unlimited liability of partners.
6. What is meant by unlimited liability in a partnership?
Unlimited liability means that partners are personally responsible for the debts of the firm. If the firm cannot pay, partners must use personal assets to settle the debts.
7. Define joint liability and several liability in a partnership firm.
- Joint liability: All partners are collectively responsible for the debts of the firm.
- Several liability: Each partner can be held individually responsible for the full amount of debt.
8. What do you mean by implied authority of a partner?
Implied authority allows a partner to act on behalf of the firm and bind all partners for acts related to the business of the firm.
9. How is the profit-sharing ratio decided among partners?
The profit-sharing ratio is decided based on the partnership deed. If the deed is silent, profits are shared equally.
10. Can a partner transfer their share to an outsider? Explain.
A partner can transfer their share only with the consent of other partners, as partnership is based on mutual trust.
11. How is interest on partner's loan treated in the books of accounts?
- Interest on partner’s loan is treated as an expense.
- It is credited to the partner’s loan account and debited to the Profit and Loss Account.
12. What happens if a partner brings additional capital into the firm?
The partner’s capital account is credited with the additional capital amount.
13. How is interest on capital calculated?
Interest on capital = Capital × Rate of Interest × Time (if provided in the partnership deed).
14. What are the reasons for preparing a Revaluation Account?
Revaluation account is prepared to record the change in value of assets and liabilities at the time of:
- Admission of a new partner.
- Retirement or death of a partner.
- Reconstitution of the firm.
15. How do you treat the loss on realization during dissolution?
Loss on realization is transferred to the partners’ capital accounts in their profit-sharing ratio.
16. Journal entry for partner’s salary or commission:
- Partner’s Salary:
Debit: Profit and Loss Appropriation Account
Credit: Partner’s Capital/Current Account
17. How do you account for the dissolution of a partnership firm?
- Assets are sold, and liabilities are paid off.
- Realization Account is prepared.
- Any balance left is distributed among partners in their capital ratio.
18. Difference between current account and capital account:
- Current Account: Used when the capital is fixed. Records transactions like drawings, interest, and salary.
- Capital Account: Used when the capital is fluctuating.
19. Why is the Profit and Loss Appropriation Account prepared?
It is prepared to show the distribution of profits/losses among partners after adjustments like interest on capital, salary, etc.
20. How do you treat unrecorded assets and liabilities during dissolution?
- Unrecorded assets: Credited to the Realization Account when sold.
- Unrecorded liabilities: Debited to the Realization Account when paid.
21. What happens when a partner becomes insolvent?
The Garner vs. Murray rule applies:
- The insolvent partner’s deficiency is borne by the remaining partners in their capital ratio.
22. How is goodwill adjusted at admission, retirement, or death of a partner?
- Admission: New partner compensates old partners.
- Retirement/Death: Retiring/deceased partner’s share of goodwill is credited to their capital account.
23. What is the difference between sacrificing ratio and gaining ratio?
- Sacrificing Ratio: Ratio given up by existing partners when a new partner is admitted.
- Gaining Ratio: Ratio gained by remaining partners when a partner retires or dies.
24. What is a realization account?
The Realization Account is prepared to close the firm during dissolution. It records the sale of assets, payment of liabilities, and calculation of profit/loss on realization.
25. How is capital deficiency handled in case of dissolution?
The capital deficiency of a partner is borne by other partners in their profit-sharing ratio.
26. What is the treatment of loan taken from a partner during dissolution?
A partner’s loan is paid before settlement of partners’ capital accounts but after external liabilities.
27. What is the journal entry when a partner brings in goodwill?
- Debit: Cash/Bank Account
- Credit: Partner’s Capital Account (Goodwill brought in cash).
28. How do you calculate interest on drawings?
- Simple Method:
Interest = Total Drawings × Rate × Time - Product Method:
Interest = Total Products of Drawings × Rate × 1/12
29. What is the Garner vs. Murray rule?
This rule applies when a partner becomes insolvent, and their deficiency is shared by solvent partners in their capital ratio.
30. What happens when a partner withdraws goods for personal use?
- Drawings Account is debited.
- Purchases Account or Stock Account is credited.
These are the answers to important viva questions on Partnership Accounts. Let me know if you need further explanations or practice questions. 😊
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