Here are the answers to the Partnership Viva Questions for Class 12:
1. What is a partnership? Define it.
A partnership is an agreement between two or more persons to carry on a business together and share its profits and losses. It is defined under Section 4 of the Indian Partnership Act, 1932.
2. What is the role of mutual agency in a partnership?
Mutual agency means that each partner acts as both an agent and a principal. A partner can act on behalf of the firm, and the actions of one partner bind all other partners.
3. Difference between Drawing and Loan in partnership.
- Drawings: Amount withdrawn by a partner for personal use. It is adjusted against capital or profit.
- Loan: Money taken by a partner as a loan is shown as a liability and accrues interest payable by the partner.
4. What is Interest on Drawings (IOI)? When is it applicable?
Interest on Drawings is the interest charged on the amount withdrawn by a partner for personal use.
- It is applicable only when specified in the partnership deed.
- It is charged to the partner’s capital account or current account.
5. Difference between Fixed Capital and Fluctuating Capital Account.
- Fixed Capital: The capital remains constant unless there is an additional introduction or withdrawal of capital. Two accounts are maintained: Capital Account and Current Account.
- Fluctuating Capital: Capital changes due to adjustments like drawings, profits, losses, and interest. Only one capital account is maintained.
6. What is a Partnership Deed? Why is it important?
A Partnership Deed is a written agreement between partners specifying the terms and conditions of their partnership.
- It is important to avoid disputes and clearly define the rights, duties, and profit-sharing ratios among partners.
7. Why is rent to a partner not treated as an appropriation of profit?
Rent paid to a partner is considered an expense for the firm, as the partner is acting in the capacity of a landlord. It is paid before the calculation of profit.
8. What is Interest on Capital (IOC) and Interest on Drawings?
- Interest on Capital: Compensation to partners for their capital invested in the firm.
- Interest on Drawings: Charged on the amount withdrawn by partners for personal use.
9. Explain Profit and Loss Appropriation Account.
The Profit and Loss Appropriation Account is prepared to distribute the firm’s profits or losses among partners. Items like interest on capital, interest on drawings, and partner’s salaries are adjusted in this account.
10. What is a Profit and Loss Suspense Account?
A Profit and Loss Suspense Account is created to adjust any unforeseen profits or losses. It is based on past profits and is used for future adjustments or contingencies.
11. Why are assets brought to the debit side in realization?
Assets are shown on the debit side of the realization account because they are yet to be sold or realized. It helps calculate the gain or loss on the realization of assets during dissolution.
12. What happens if there is no partnership deed?
If there is no partnership deed, the following rules apply:
- Profits and losses are shared equally.
- No interest on capital is allowed.
- No salary is allowed to any partner.
- Interest on loan by a partner is given at 6% per annum.
13. How are profits distributed in the absence of a partnership deed?
Profits are distributed equally among all partners, regardless of their capital contribution.
14. What is goodwill? How is it treated?
Goodwill is the reputation of a business that generates future profits.
- At admission: New partner compensates for goodwill.
- At retirement or death: Goodwill is credited to the retiring partner’s account.
15. What is revaluation of assets and liabilities?
Revaluation means reassessing the value of assets and liabilities at the time of admission, retirement, or death of a partner to determine their fair value.
16. What is minority interest in partnership?
Minority interest refers to the rights of a partner who disagrees with a decision. If even one partner does not agree, the decision cannot be finalized.
17. Rights, Duties, and Liabilities of Partners
- Rights: Right to participate in management, share profits, and access books of accounts.
- Duties: Act in good faith, avoid personal gain, and work for the firm’s benefit.
- Liabilities: Partners are jointly and severally liable for the debts of the firm.
18. What is the realization account?
A realization account is prepared during the dissolution of a partnership to record the sale of assets and payment of liabilities. The profit or loss is transferred to the partners’ capital accounts.
19. If a partner takes a loan, how is it treated?
A loan taken by a partner is shown as a liability for the partner and earns interest payable to the firm.
20. How to calculate interest on drawings?
Interest on drawings can be calculated using:
- Simple Method: Interest = Amount × Rate × Time
- Product Method: Total of all drawings × Rate × Time
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