Question Bank - Accountancy

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In the absence of an agreement to the contrary, the partners are entitled to ________ interest on loans to the firm, ________.

A.
6%; only when there are profits
B.
9%; only when there are profits
C.
6%; whether or not there are profits
D.
9%; whether or not there are profits

Solution:

Under the Partnership Act, 1932 the following rules will be applicable in the absence of an agreement among the partners :If a partner has given a loan to the firm besides his share of capital, he will be allowed a 6% interest on such a loan. (Section 13)Section 13 in The Indian Partnership Act, 1932Mutual rights and liabilities. ”Subject to contract between the partners,”a partner is not entitled to receive remuneration for taking part in the conduct of the business;the partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm; where a partner is entitled to interest on the capital subscribed by him such interest shall be payable only out of profits; a partner making, for the purposes of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of six percent. per annum;the firm shall indemnify a partner in respect of payments made and liabilities incurred by him”in the ordinary and proper conduct of the business, and(in doing such act, in an emergency, for the purpose of protecting the firm from loss, as would be done by a person of ordinary prudence, in his own case, under similar circumstances; and 6. a partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm. Therefore, In the absence of an agreement to the contrary, the partners are entitled to 6% interest on loans to the firm, whether or not there are profits.

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