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Question

In the absence of a partnership deed, the allowable rate of interest on a partners loan account will be:

A
4% p.a.
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B
5% p.a.
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C
6% p.a.
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D
7.5% p.a.
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Solution

The correct option is C 6% p.a.

It is not compulsory to have a partnership deed for a partnership firm. Hence if a firm is not having any written agreement or a partnership deed or if partnership deed is there but it is silent on certain issues the following provisions of the Indian Partnership Act 1932 will be applicable.

1. Profit sharing Ratio : Profits and losses would be shared equally among partners.

2. Interest on capital : No interest on capital would be allowed to partners. If there is an agreement to allow interest on capital it is to be allowed only in case of profits.

3. Interest on drawings: No interest on drawings would be charged from partners.

4. Salary: No salary or commission is to be allowed to partners.

5. Interest on Loan : If a partner has provided any Loan to the firm, he would be paid Interest at the rate 6% p.a. This interest on loan is a charge against profits i.e. it is to be allowed even if there are losses to the firm.

6. Admission of a new partner: A new Partner can be admitted only with the consent of all the existing partners.

7. Right to participate in the business: Each partner has a right to participate in the proceedings of the business.

8. Inspection of the accounts of the firm: Each partner has the right to inspect the accounts of the firm and can have a copy of the same.

Any of the above provisions can be changed by the partners after an agreement.


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