Page 14 - ISCDEBK-12

1.4 Double Entry Book Keeping (Section A)—ISC XII

Solved Questions

Illustration 1 (Provisions of the Indian Partnership Act, 1932).
X and Y are partners in a firm. They do not have Partnership Deed. What shall be the position in the
following cases?
(i) X devotes more time than Y in the business. X claims that he should get a salary of
` 6,000 per month for it.
(ii) Y has provided a capital of ` 50,000 whereas X has provided ` 5,000 only as capital.
X, however, has advanced ` 10,000 as loan to the firm. What interest, if any, will be
given to X and Y?
(iii) X wants to introduce his son Z into their business. Y objects to his proposal.

Solution:
In the absence of Partnership Deed, provisions of the Indian Partnership Act, 1932 shall
apply to settle the disputes:
(i) Salary is not payable to any partner. Therefore, X is not entitled to any salary.
(ii) Interest on capital is not payable to any partner. Therefore, X and Y will not get interest
on their capitals. Interest on Loan is allowed @ 6% p.a. Thus, X will get interest
` 600 (i.e., 6% of ` 10,000).
(iii) A person cannot be introduced as partner without the consent of all the partners.
Therefore, Z cannot be admitted into partnership because Y objects to it.
Illustration 2.
Ann and Rose are partners and they do not have Partnership Deed. They have different
opinion on issues relating to sharing of profits, interest on capital, etc. They approach
you for advice to know the correct position. You are to give your opinion, with reasons.
The issues are:
(i) Ann devotes time to the partnership business and, therefore, claims salary. Rose
opposes it.
(ii) Rose invested ` 2,50,000 less than Ann in the capital of the firm. Ann claims interest
on ` 2,50,000 which also Rose opposes.
(iii) Rose proposes that interest be charged by the firm on the drawings. Ann
opposes it.
(iv) Ann has advanced a loan of ` 2,00,000 to the firm and claims interest @ 8% p.a.
(v) Ann claims to share profits in their capital ratio, to which Rose does not agree and
proposes that the profits be shared equally.

Solution:
It is important to note that Ann and Rose do not have Partnership Deed. Therefore,
provisions of the Indian Partnership Act, 1932 will apply as follows:
(i) The Indian Partnership Act, 1932 provides that salary is not to be allowed to a partner,
if the Partnership Deed does not exist or allow it. Therefore, the claim of Ann is not
acceptable.