Partnership basics and Partnership Act rules

Topic 17: Partnership Basics and Partnership Act Rules — 50 Hard MCQs

1. A partnership has no partnership agreement.

How should profits and losses be shared?

A according to capital contributed
B according to drawings made
C equally between partners
D according to salaries paid

2. A partnership has no partnership agreement. Partner A has capital of $80 000 and Partner B has capital of $20 000.

Which statement is correct?

A A receives four times B’s profit share
B A receives interest on capital automatically
C profits are shared equally
D B receives salary because capital is lower

3. A partnership has no agreement.

Which item is allowed under the Partnership Act?

A interest on capital
B interest on drawings
C partner salaries
D interest on partner loans

4. A partnership has no agreement. Partner X lends $30 000 to the partnership for 8 months.

What loan interest is payable?

A $0
B $1000
C $1500
D $12 000

5. A partnership agreement allows interest on capital at 6% per annum. Partner A has capital of $75 000 for the whole year.

What interest on capital is credited to A?

A $0
B $4500
C $75 000
D $79 500

6. Partner B has capital of $60 000. The partnership agreement allows interest on capital at 8% per annum. B introduced an additional $15 000 capital halfway through the year.

What interest on capital is credited to B?

A $4800
B $5400
C $6000
D $9000

7. Partner C withdrew $12 000 drawings evenly throughout the year. Interest on drawings is charged at 10% per annum.

What interest on drawings is charged?

A $600
B $1200
C $2400
D $12 000

8. Partner D withdrew $20 000 drawings on 1 October. The financial year ends on 31 December. Interest on drawings is charged at 12% per annum.

What interest on drawings is charged?

A $600
B $1200
C $1800
D $2400

9. Partner E withdrew $3000 on 1 January, $5000 on 1 July and $4000 on 1 October. The financial year ends on 31 December. Interest on drawings is 10% per annum.

What interest on drawings is charged?

A $475
B $550
C $650
D $1200

10. A partnership agreement gives Partner A a salary of $18 000. Profit before appropriations is $70 000. No other appropriations exist. Residual profit is shared equally between A and B.

What is A’s total share of profit?

A $26 000
B $35 000
C $44 000
D $53 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. Profit before appropriations is $96 000. Partner A receives salary $12 000. Partner B receives salary $18 000. Interest on capital is A $6000 and B $4000. Interest on drawings is A $1000 and B $500. Residual profit is shared 3:2.

What is A’s total appropriation of profit?

A $37 500
B $42 900
C $43 900
D $44 900

12. Using the information in Question 11, what is B’s total appropriation of profit?

A $35 100
B $36 600
C $37 600
D $38 100

13. A partnership has profit before appropriations of $80 000. Interest on drawings is $3000. Partner salaries are $22 000. Interest on capital is $9000.

What residual profit is shared between partners?

A $46 000
B $49 000
C $52 000
D $74 000

14. A partnership has a loss before appropriations of $18 000. Interest on drawings is $2000. Partner salary is $10 000. Interest on capital is $4000.

What residual loss is shared?

A $30 000
B $32 000
C $34 000
D $36 000

15. Profit before appropriations is $50 000. Partner A is entitled to salary $20 000 and interest on capital $8000. Partner B is entitled to salary $12 000 and interest on capital $6000. Residual profit/loss is shared equally.

What is A’s total share of profit?

A $28 000
B $30 000
C $31 000
D $36 000

16. Using the information in Question 15, what is B’s total share of profit?

A $18 000
B $19 000
C $24 000
D $30 000

17. A partnership agreement states that profits are shared A:B = 3:2 after salaries. Profit before appropriations is $72 000. A receives salary $15 000 and B receives salary $9000.

What is A’s total share?

A $28 800
B $43 800
C $48 000
D $57 000

18. Using the information in Question 17, what is B’s total share?

A $19 200
B $24 000
C $28 200
D $33 000

19. A partnership agreement gives Partner A a guaranteed minimum total profit share of $35 000. Profit before appropriations is $80 000. A and B otherwise share profits equally.

What is A’s final share?

A $35 000
B $40 000
C $45 000
D $80 000

20. A partnership agreement gives Partner A a guaranteed minimum total profit share of $50 000. Profit before appropriations is $90 000. A and B otherwise share profits equally. Any deficiency is borne by B.

What is B’s final share?

A $40 000
B $45 000
C $50 000
D $90 000

21. Profit before appropriations is $120 000. A receives salary $20 000. B receives salary $10 000. Interest on capital is A $5000 and B $7000. Interest on drawings is A $800 and B $1200. Residual profit is shared A:B = 5:3.

What is A’s total share?

A $67 250
B $68 050
C $68 850
D $69 650

22. Using the information in Question 21, what is B’s total share?

A $49 950
B $50 750
C $51 550
D $52 350

23. A partnership agreement states that profits are shared in the ratio of fixed capital balances. A has capital $90 000, B has capital $60 000 and C has capital $30 000.

What is the profit-sharing ratio?

A 1:2:3
B 2:3:6
C 3:2:1
D equal

24. A partnership agreement states that interest on capital is 5% and residual profits are shared equally. A has capital $100 000 and B has capital $40 000. Profit before appropriations is $42 000.

What is A’s total profit share?

A $18 000
B $21 000
C $24 500
D $26 000

25. Using the information in Question 24, what is B’s total profit share?

A $15 500
B $16 000
C $18 000
D $21 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. A partnership agreement provides interest on drawings of 8% per annum. Partner A withdrew $18 000 evenly throughout the year.

How is this treated in the appropriation account?

A added to A’s profit share
B deducted from A’s profit share
C treated as an expense before profit
D ignored because drawings are not expenses

27. A partner’s salary in a partnership appropriation account is:

A an expense deducted before profit for the year
B an appropriation of profit
C a liability to outside creditors only
D recorded as drawings only

28. Interest on a partner’s loan is:

A an appropriation of profit
B an expense deducted before profit is appropriated
C added to capital only
D ignored if there is a loss

29. Interest on partners’ capital is:

A an expense in the income statement
B an appropriation of profit
C deducted from drawings
D treated as a non-current liability

30. Interest on drawings is:

A credited to the partner and deducted from profit
B charged to the partner and added to profit available for appropriation
C treated as depreciation
D shown as a current asset

31. A partnership has profit before loan interest of $64 000. Partner A lent $40 000 to the business. Loan interest is 6% per annum and has not yet been recorded. Residual profit is shared equally between A and B.

What profit is available for appropriation after loan interest?

A $61 600
B $64 000
C $66 400
D $104 000

32. Using the information in Question 31, what is A’s total benefit from the partnership, including loan interest and profit share?

A $30 800
B $32 000
C $33 200
D $64 000

33. A partnership has no agreement. Partner A lent the partnership $24 000 for 6 months.

What interest is payable?

A $0
B $600
C $1200
D $2400

34. A partnership agreement is silent about interest on capital but states that profits are shared 4:1.

Which statement is correct?

A interest on capital is paid at 5%
B interest on capital is not paid
C interest on capital is paid according to profit-sharing ratio
D interest on capital is paid only if profits exceed drawings

35. A partnership agreement is silent about partner salaries but states that profits are shared equally.

Which statement is correct?

A salaries are paid equally
B salaries are not paid
C salaries are based on capital balances
D salaries are paid at 5% of profit

36. Profit before appropriations is $36 000. Partner A salary is $24 000 and Partner B salary is $18 000. Residual profits/losses are shared equally.

What is A’s total share?

A $15 000
B $21 000
C $24 000
D $36 000

37. Using the information in Question 36, what is B’s total share?

A $12 000
B $15 000
C $18 000
D $21 000

38. Profit before appropriations is $30 000. Interest on capital is A $6000 and B $4000. A receives salary $8000. B receives salary $5000. Interest on drawings is A $500 and B $300. Residual profit is shared 3:2.

What is residual profit?

A $7800
B $8800
C $9800
D $12 800

39. Using the information in Question 38, what is A’s total share after interest on drawings?

A $18 380
B $18 880
C $19 380
D $20 380

40. Using the information in Question 38, what is B’s total share after interest on drawings?

A $10 420
B $11 420
C $12 420
D $13 420

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. A partnership has profit before appropriations of $100 000. Interest on drawings totals $2000. Salaries total $36 000. Interest on capital totals $14 000. Residual profit is shared equally.

What is total profit credited to partners?

A $86 000
B $100 000
C $102 000
D $116 000

42. Why is interest on drawings added to profit before calculating residual profit?

A because it is income from outside customers
B because it reduces partners’ entitlements and increases profit available for sharing
C because it is a business expense
D because it increases drawings

43. A partner withdraws goods costing $2500 for personal use. The goods would normally be sold for $4000.

What amount is recorded as drawings?

A $1500
B $2500
C $4000
D $6500

44. A partner takes cash drawings of $12 000. Interest on drawings is $600.

What total is normally debited to the partner’s current account?

A $600
B $11 400
C $12 000
D $12 600

45. A partner’s current account shows an opening credit balance of $5000. Profit share is $18 000. Drawings are $14 000. Interest on drawings is $700.

What is the closing current account balance?

A $8300 credit
B $9700 credit
C $10 300 credit
D $36 700 credit

46. A partner’s current account has an opening debit balance of $3000. Salary credited is $12 000. Profit share credited is $9000. Drawings are $15 000 and interest on drawings is $600.

What is the closing current account balance?

A $2400 credit
B $3000 credit
C $3600 credit
D $5400 debit

47. A partnership’s appropriation account includes interest on capital of $9000, salaries of $18 000 and residual profit of $33 000. Interest on drawings is $2000.

What was profit before appropriations?

A $58 000
B $60 000
C $62 000
D $64 000

48. A partnership’s profit before appropriations is $75 000. Interest on drawings is $1500. Partner salaries are $28 000. Interest on capital is $10 000.

What residual profit is shared?

A $35 500
B $36 500
C $38 500
D $48 500

49. A partner receives salary $15 000, interest on capital $3000 and residual profit share $22 000. Interest on drawings is $800.

What is the partner’s total credit to current account from appropriation?

A $39 200
B $40 000
C $40 800
D $41 600

50. A partnership agreement states that A receives salary $20 000. Remaining profit is shared A:B = 2:3. Profit before appropriations is $65 000.

What is B’s total share of profit?

A $18 000
B $27 000
C $39 000
D $45 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. C — equally between partners

• If there is no partnership agreement, profits and losses are shared equally.

• Capital contributed does not matter unless the agreement says so.

2. C — profits are shared equally

• No agreement means equal profit-sharing.

• A does not receive more profit just because A contributed more capital.

• No automatic interest on capital.

3. D — interest on partner loans

• Under the Partnership Act, interest is allowed on partner loans, usually at 5% per annum.

• No automatic salaries, interest on capital or interest on drawings.

4. B — $1000

• Loan = $30 000

• Interest rate = 5% per annum

• Time = 8 months

• Interest = 30 000 × 5% × 8/12

• = $1000

5. B — $4500

• Interest on capital = 6% × 75 000

• = $4500

6. B — $5400

• Original capital = 60 000 × 8% = $4800

• Additional capital = 15 000 × 8% × 6/12 = $600

• Total interest on capital = 4800 + 600

• = $5400

7. A — $600

• Drawings were taken evenly throughout the year.

• Average time = 6 months.

• Interest = 12 000 × 10% × 6/12

• = $600

8. A — $600

• Drawings = $20 000

• Taken on 1 October, year ends 31 December = 3 months

• Interest = 20 000 × 12% × 3/12

• = $600

9. C — $650

• $3000 on 1 January for 12 months = 3000 × 10% = $300

• $5000 on 1 July for 6 months = 5000 × 10% × 6/12 = $250

• $4000 on 1 October for 3 months = 4000 × 10% × 3/12 = $100

• Total interest = 300 + 250 + 100

• = $650

10. C — $44 000

• Profit before appropriations = $70 000

• A salary = $18 000

• Residual profit = 70 000 – 18 000 = $52 000

• Shared equally = $26 000 each

• A total share = 18 000 + 26 000

• = $44 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. No correct option — correct answer is $51 500

• Profit before appropriations = $96 000

• Add interest on drawings:

  • A = $1000

  • B = $500

• Profit available = 96 000 + 1500 = $97 500

• Less salaries = 12 000 + 18 000 = $30 000

• Less interest on capital = 6000 + 4000 = $10 000

• Residual profit = 97 500 – 30 000 – 10 000 = $57 500

• A residual share = 3/5 × 57 500 = $34 500

• A total = salary 12 000 + interest on capital 6000 + residual 34 500 – interest on drawings 1000

• = $51 500

12. No correct option — correct answer is $44 500

• B residual share = 2/5 × 57 500 = $23 000

• B total = salary 18 000 + interest on capital 4000 + residual 23 000 – interest on drawings 500

• = $44 500

13. C — $52 000

• Profit before appropriations = $80 000

• Add interest on drawings = $3000

• Less salaries = $22 000

• Less interest on capital = $9000

• Residual profit = 80 000 + 3000 – 22 000 – 9000

• = $52 000

14. A — $30 000

• Loss before appropriations = $18 000

• Add interest on drawings = $2000

• Less salary = $10 000

• Less interest on capital = $4000

• Residual result = -18 000 + 2000 – 10 000 – 4000

• = $30 000 loss

15. B — $30 000

• Profit before appropriations = $50 000

• Total salaries = 20 000 + 12 000 = $32 000

• Total interest on capital = 8000 + 6000 = $14 000

• Residual profit = 50 000 – 32 000 – 14 000 = $4000

• A residual share = $2000

• A total = 20 000 + 8000 + 2000

• = $30 000

16. No correct option — correct answer is $20 000

• B salary = $12 000

• B interest on capital = $6000

• B residual share = $2000

• B total = 12 000 + 6000 + 2000

• = $20 000

17. B — $43 800

• Profit before appropriations = $72 000

• Salaries = 15 000 + 9000 = $24 000

• Residual profit = 72 000 – 24 000 = $48 000

• A share = 3/5 × 48 000 = $28 800

• A total = 15 000 + 28 800

• = $43 800

18. C — $28 200

• B salary = $9000

• B residual share = 2/5 × 48 000 = $19 200

• B total = 9000 + 19 200

• = $28 200

19. B — $40 000

• Profit shared equally = 80 000 / 2 = $40 000 each.

• A is guaranteed minimum $35 000.

• Since $40 000 is already above the guarantee, A receives $40 000.

20. A — $40 000

• Equal share would be $45 000 each.

• A is guaranteed $50 000.

• Deficiency = 50 000 – 45 000 = $5000

• B bears deficiency.

• B final share = 45 000 – 5000

• = $40 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

21. No correct option — correct answer is $74 200

• Profit before appropriations = $120 000

• Add interest on drawings = 800 + 1200 = $2000

• Profit available = $122 000

• Less salaries = 20 000 + 10 000 = $30 000

• Less interest on capital = 5000 + 7000 = $12 000

• Residual profit = 122 000 – 30 000 – 12 000 = $80 000

• A residual share = 5/8 × 80 000 = $50 000

• A total = salary 20 000 + interest on capital 5000 + residual 50 000 – interest on drawings 800

• = $74 200

22. No correct option — correct answer is $45 800

• B residual share = 3/8 × 80 000 = $30 000

• B total = salary 10 000 + interest on capital 7000 + residual 30 000 – interest on drawings 1200

• = $45 800

23. C — 3:2:1

• Capital balances:

  • A = $90 000

  • B = $60 000

  • C = $30 000

• Ratio = 90:60:30

• Simplified = 3:2:1

24. No correct option — correct answer is $22 500

• A interest on capital = 5% × 100 000 = $5000

• B interest on capital = 5% × 40 000 = $2000

• Residual profit = 42 000 – 5000 – 2000 = $35 000

• Shared equally = $17 500 each

• A total = 5000 + 17 500

• = $22 500

25. No correct option — correct answer is $19 500

• B interest on capital = $2000

• B residual share = $17 500

• B total = 2000 + 17 500

• = $19 500

26. B — deducted from A’s profit share

• Interest on drawings is charged to the partner.

• It reduces that partner’s final current account credit/profit entitlement.

• In the appropriation account, it is added to profit available before residual sharing.

27. B — an appropriation of profit

• Partner salary is not an income statement expense.

• It is a way of dividing profit between partners.

28. B — an expense deducted before profit is appropriated

• Interest on a partner’s loan is a finance cost.

• It is deducted before the appropriation account.

29. B — an appropriation of profit

• Interest on capital is not a business expense.

• It is credited to partners as part of profit appropriation.

30. B — charged to the partner and added to profit available for appropriation

• Interest on drawings reduces the partner’s entitlement.

• It increases the profit available to be shared among partners.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. A — $61 600

• Loan interest = 40 000 × 6% = $2400

• Profit available for appropriation = 64 000 – 2400

• = $61 600

32. C — $33 200

• Profit share = 61 600 / 2 = $30 800

• Loan interest = $2400

• A’s total benefit = 30 800 + 2400

• = $33 200

33. B — $600

• No agreement means partner loan interest is allowed at 5% per annum.

• Interest = 24 000 × 5% × 6/12

• = $600

34. B — interest on capital is not paid

• If the partnership agreement is silent about interest on capital, it is not allowed.

• The 4:1 profit-sharing ratio does not automatically create interest on capital.

35. B — salaries are not paid

• Partner salaries are only allowed if the agreement says so.

• If silent, no salaries are paid.

36. B — $21 000

• Profit before appropriations = $36 000

• Salaries = 24 000 + 18 000 = $42 000

• Residual loss = 36 000 – 42 000 = $6000 loss

• Shared equally = $3000 loss each

• A total = salary 24 000 – residual loss 3000

• = $21 000

37. B — $15 000

• B salary = $18 000

• B share of residual loss = $3000

• B total = 18 000 – 3000

• = $15 000

38. A — $7800

• Profit before appropriations = $30 000

• Add interest on drawings = 500 + 300 = $800

• Less interest on capital = 6000 + 4000 = $10 000

• Less salaries = 8000 + 5000 = $13 000

• Residual profit = 30 000 + 800 – 10 000 – 13 000

• = $7800

39. No correct option — correct answer is $18 180

• A residual share = 3/5 × 7800 = $4680

• A total before interest on drawings = salary 8000 + interest on capital 6000 + residual 4680 = $18 680

• Less interest on drawings = $500

• A final share = $18 180

40. No correct option — correct answer is $11 820

• B residual share = 2/5 × 7800 = $3120

• B total before interest on drawings = salary 5000 + interest on capital 4000 + residual 3120 = $12 120

• Less interest on drawings = $300

• B final share = $11 820

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. C — $102 000

• Profit before appropriations = $100 000

• Add interest on drawings = $2000

• Total credited to partners through salaries, interest on capital and residual profit = $102 000

• Interest on drawings is later debited to partners’ current accounts.

42. B — because it reduces partners’ entitlements and increases profit available for sharing

• Interest on drawings is charged to partners.

• It is added before calculating residual profit because it increases the amount available for appropriation.

43. B — $2500

• Goods taken by a partner are recorded at cost.

• Drawings = $2500

• The selling price is irrelevant because no sale took place.

44. D — $12 600

• Cash drawings = $12 000

• Interest on drawings = $600

• Both are debited to the partner’s current account.

• Total debit = $12 600

45. A — $8300 credit

• Opening credit balance = $5000

• Add profit share = $18 000

• Less drawings = $14 000

• Less interest on drawings = $700

• Closing balance = 5000 + 18 000 – 14 000 – 700

• = $8300 credit

46. A — $2400 credit

• Opening debit balance = $3000

• Add salary = $12 000

• Add profit share = $9000

• Less drawings = $15 000

• Less interest on drawings = $600

• Closing balance = -3000 + 12 000 + 9000 – 15 000 – 600

• = $2400 credit

47. A — $58 000

• Interest on capital + salaries + residual profit = 9000 + 18 000 + 33 000 = $60 000

• This equals profit before appropriations + interest on drawings.

• Profit before appropriations = 60 000 – 2000

• = $58 000

48. C — $38 500

• Profit before appropriations = $75 000

• Add interest on drawings = $1500

• Less salaries = $28 000

• Less interest on capital = $10 000

• Residual profit = 75 000 + 1500 – 28 000 – 10 000

• = $38 500

49. B — $40 000

• Credits to current account:

  • salary = $15 000

  • interest on capital = $3000

  • residual profit share = $22 000

• Total credit = 15 000 + 3000 + 22 000

• = $40 000

• Interest on drawings is a debit, not a credit.

50. B — $27 000

• Profit before appropriations = $65 000

• A salary = $20 000

• Remaining profit = 65 000 – 20 000 = $45 000

• B share = 3/5 × 45 000

• = $27 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.