Theory question 101
Partnership AccountsSection A (answer two questions only from this section)
1. (a) What is partnership? (b) State two rules which shall apply in a partnership business in the absence of any express agreement.
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(a) A partnership is the relationship between two or more persons (usually 2 to 20) who carry on a business in common with a view to making profit.
(b) Any two rules of the Partnership Act: profits and losses are shared equally; no interest is allowed on capital; no interest is charged on drawings; no partner is entitled to a salary; a partner who lends money to the firm beyond his capital gets 5% interest a year on the loan; no new partner may be admitted without the consent of all partners; the firm must indemnify a partner for payments properly made in the course of the business.
Learn the Partnership Act rules: equal shares, no interest on capital or drawings, no salary, 5% on loans.