Question

Which of the following is correct? The important provision affecting partnership accounting, in the absence of a partnership deed is:

• A. Profit Sharing Ratio: If the partnership deed is silent about the profit sharing ratio, the profits and losses of the firm are to be shared by partners in their capital ratio.
• B. Interest on Capital: Partner is entitled to claim higher interest on the amount of capital contributed by him in the firm as a matter of right.
• C. Interest on Drawings: No interest is to be charged on the drawings made by the partners, if there is no mention in the Deed.
• D. Interest on Loan: If any partner has advanced loan to the firm for the purpose of business, he/she shall be entitled to get an interest on the loan amount at the rate of 16% per annum.

Hint:

In absence of a partnership deed: Profits/losses shared equally, no interest on capital/drawings, but 6% interest allowed on partner's loan.

Answer 1

The Correct Option is C

Step 1: Default Partnership Provisions. Under the Indian Partnership Act, 1932, in the absence of a partnership agreement: - Profits and losses are distributed equally, irrespective of capital contributions. - Partners are not entitled to interest on their capital contributions. - Interest is not charged on drawings. - A partner advancing a loan to the firm is eligible for 6% interest per annum, not 16%.

Step 2: Evaluation of Alternatives.
- Alternative 1 is incorrect: Profits/losses are shared equally, not based on capital ratios.
- Alternative 2 is incorrect: Interest on capital is not permissible without an explicit agreement.
- Alternative 3 is correct: In the absence of a deed, no interest is levied on drawings.
- Alternative 4 is incorrect: The interest rate on loans is capped at 6%, not 16%.

Final Determination: \[\boxed{\text{No interest is to be charged on drawings (Alternative 3)}}\]