Rights and Liabilities of Partner Class 12 Accountancy
Are you looking for the rights and liabilities of partners as given in Accounting for partnership – Fundamentals chapter of Class 12 Accountancy CBSE Board.
I have summed all rights of partners as given in the syllabus of class 12 Accountancy.
Rights of Partners as given in Accounting for partnership – Fundamentals Chapter of Class 12 Accountancy CBSE Board
Below are the Default Rights of Partners in a Partnership Firm until restricted by mutual agreement between the partners, typically outlined in the partnership deed.
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1. Every partner has the right to participate in the management of the business.
2. Every partner has the right to be consulted about the affairs of the business.
3. Every partner has the right to inspect the books of account and have a copy of it.
4. Every partner has the right to share profits or losses with other partners in the agreed ratio.
5. A partner has the right not to allow the admission of a new partner.
6. Every Partner is the joint owner of the partnership property.
7. If a partner has advanced a loan, he has the right to receive interest thereon at an agreed rate of interest. In case the rate of interest is not agreed, interest is paid at the rate provided in the Indian Partnership Act, 1932, i.e., @ 6% p.a.
8. After giving proper notice, a partner has the right to retire from the firm.
9. If a partner incurs expenses on the business or pays an amount on behalf of the firm, that partner gets indemnified for the payments made by him for the firm.
Liabilities of the Partners
Following are the liabilities of the partners.
1. A partner should not carry on a business in competition with the firm. If he earns a profit from such business it shall be paid to the firm. However, if he incures a loss, it will be borne by him alone.
For Example:-
Imagine a partnership firm called “Tech Solutions,” which specializes in IT consulting services. The firm has three partners: A, B, and C. Partner A decides to start a competing business called “Innovative Tech” that provides similar IT consulting services, without the consent of the other partners.
Case 1: Partner A earns a profit
Partner A earns a profit of ₹2,00,000 from “Innovative Tech.” Since this business competes with the firm’s interests, the profit must be transferred to “Tech Solutions” as per partnership rules.
Case 2: Partner A incurs a loss
In another scenario, Partner A incurs a loss of ₹50,000 in “Innovative Tech.” This loss will not be shared by the firm; instead, Partner A will bear the entire loss personally. The other partners and the firm will remain unaffected financially.
2. If a partner earns some profit by using the firm’s property or money, such profit will be paid to the firm. On the other hand, if he incurs the loss, it would be borne by the partner himself.
Example – 1
A and B are partners in a firm. The firm sold goods to C for ₹ 5,00,000, and A gets a commission of 4% from C. The Commission earned by A shall be paid to the firm.
Example – 2
Imagine a partnership firm called “Elite Interiors,” which specializes in furniture design and manufacturing. The firm has two partners: P and Q.
Scenario:
Partner P decides to use the firm’s warehouse (which belongs to “Elite Interiors”) to store and sell antique furniture as a personal venture. Through this business, Partner P earns a profit of ₹1,50,000.
Outcome:
Since Partner P used the firm’s property (the warehouse) for personal business activities, the profit of ₹1,50,000 must be paid to “Elite Interiors” as per the partnership agreement. This ensures that the firm’s assets and resources are not unfairly used for individual gain.
Practice Questions
Which of the following is a right every partner possesses in a partnership firm?
(a) The right to terminate the partnership without consent
(b) The right to participate in the management of the business
(c) The right to remain inactive during the firm’s operations
(d) The right to deny profit-sharing
Ans:- b)
Every partner has the right to participate in the management of the business.
In a partnership firm, the right of every partner to participate in the management of the business can be limited by:
(a) Mutual agreement between the partners
(b) Government regulations
(c) The firm’s profit margins
(d) The number of partners in the firm
Ans:- a)
the defalut rights of the partners can be restricted by the mutual agrrement among the partners.
Assertion (A): Every partner in a partnership firm has the right to participate in the management of the business.
Reason (R): Partnership firms are formed with mutual consent, and equal participation ensures fairness in decision-making.
(a) Both A and R are true, and R is the correct explanation of A
(b) Both A and R are true, but R is not the correct explanation of A
(c) A is true, but R is false
(d) A is false, but R is true
Ans:- (a)
Which of the following rights does every partner in a partnership firm possess?
(a) The right to be excluded from decision-making
(b) The right to be consulted about the affairs of the business
(c) The right to operate the firm independently
(d) The right to avoid any participation in business discussions
Ans:- (b)
In a partnership firm, the right to be consulted about the affairs of the business ensures:
(a) Equal participation in management decisions
(b) Sole authority of one partner to make decisions
(c) Freedom to disregard mutual consent
(d) Restriction on partners’ access to business information
Ans:- (a)
Assertion (A): Every partner has the right to be consulted about the affairs of the business.
Reason (R): Consulting all partners ensures transparency and mutual consent in the decision-making process.
(a) Both A and R are true, and R is the correct explanation of A
(b) Both A and R are true, but R is not the correct explanation of A
(c) A is true, but R is false
(d) A is false, but R is true
Ans:- (a)
Assertion (A): A partner can be excluded from being consulted about the affairs of the business.
Reason (R): A partner loses the right to be consulted only in cases of specific agreement among all partners.
(a) Both A and R are true, and R is the correct explanation of A
(b) Both A and R are true, but R is not the correct explanation of A
(c) A is true, but R is false
(d) A is false, but R is true
Ans:- (d)
In a partnership firm, a new partner can be admitted only if:
(a) The existing partners unanimously agree to the admission
(b) The new partner invests a significant amount of capital
(c) The majority of partners vote in favor of the admission
(d) The partnership firm incurs financial losses
Ans:- (a)
Assertion (A): In a partnership firm, partners A and B cannot admit a new partner, D, if partner C refuses.
Reason (R): Admission of a new partner requires the unanimous consent of all existing partners in the firm.
(a) Both A and R are true, and R is the correct explanation of A
(b) Both A and R are true, but R is not the correct explanation of A
(c) A is true, but R is false
(d) A is false, but R is true
Ans:- (a)
Partner X advanced a loan of ₹5,00,000 to the partnership firm. The partnership deed does not specify the rate of interest. As per the Indian Partnership Act, 1932, the annual interest payable to X will be:
(a) ₹20,000
(b) ₹30,000
(c) ₹25,000
(d) ₹35,000
Ans:- (b)
Explanation: When the interest rate is not agreed upon, the rate specified by the Indian Partnership Act, 1932, i.e., 6% p.a., is applicable. ₹5,00,000 × 6% = ₹30,000.
Which of the following is true regarding a partner’s entitlement to interest on an advance loan to the firm?
(a) Interest is payable only if expressly mentioned in the partnership deed.
(b) If no interest rate is agreed upon, interest is payable at the rate of 12% p.a.
(c) If the rate of interest is not agreed upon, the Indian Partnership Act, 1932 mandates payment at 6% p.a.
(d) A partner cannot claim interest on advance loans under any circumstances.
Ans:- (c)
Partner X incurred ₹10,000 on behalf of the firm for business-related expenses. As per the Indian Partnership Act, 1932, how should the firm compensate Partner X?
(a) Deduct the amount from Partner X’s profit share
(b) Indemnify Partner X for the ₹10,000 expenses
(c) Grant Partner X a higher share in the firm’s property
(d) Write off the expenses as the firm’s loss
Ans:- (b)
Assertion (A): Partner Z pays ₹1,00,000 on behalf of the firm for procuring essential business equipment. The firm is legally bound to reimburse Partner Z for the payment.
Reason (R): Under the Indian Partnership Act, 1932, partners are entitled to indemnification for all payments made for the firm’s benefit.
(a) Both A and R are true, and R is the correct explanation of A
(b) Both A and R are true, but R is not the correct explanation of A
(c) A is true, but R is false
(d) A is false, but R is true
Ans:- (a)
In a partnership firm, Partner X starts a competing business and earns a profit of ₹1,00,000 from it. What is the legal obligation of Partner X regarding this profit?
(a) Partner X can retain the profit as personal earnings.
(b) The profit must be equally shared among the partners.
(c) The profit must be paid entirely to the firm.
(d) The profit must be distributed based on the firm’s profit-sharing ratio.
Ans:- (c)
If a partner incurs a loss while running a business in competition with the firm, which of the following statements is correct?
(a) The loss must be shared equally by the firm and the partner.
(b) The firm is obligated to indemnify the partner for the loss.
(c) The loss will be borne solely by the partner involved in the competing business.
(d) The loss will be distributed based on the firm’s profit-sharing agreement.
Ans:- (c)
Assertion (A): If a partner starts a competing business and earns a profit from it, the entire profit must be paid to the partnership firm.
Reason (R): Engaging in a competing business violates the fiduciary duties of a partner towards the partnership firm.
(a) Both A and R are true, and R is the correct explanation of A
(b) Both A and R are true, but R is not the correct explanation of A
(c) A is true, but R is false
(d) A is false, but R is true
Ans:- (a)
Assertion (A): If a partner incurs a loss while running a competing business, the partnership firm is not obligated to bear the loss.
Reason (R): Losses from a competing business are borne solely by the partner, as they arise from a breach of partnership obligations.
(a) Both A and R are true, and R is the correct explanation of A
(b) Both A and R are true, but R is not the correct explanation of A
(c) A is true, but R is false
(d) A is false, but R is true
Ans:- (a)
| S.N | Topics |
| 1. | Need and Importance of Partnership Firm with MCQs |
| 1. | Definition of Partnership with MCQS |
| 2. | Features of Partnership with MCQS |
| 3. | What are the Rights of Partners with MCQS |
| 4. | What is Partnership Deed, Meaning, content with MCQS |
| 5. | What are the Rules in the absence of a Partnership Deed with MCQS |
| 6. | What are the Rules in the absence of Partnership Deed with MCQS |
| 7. | What are the Liabilities of Partners with MCQS |
| 8. | Profit and Loss Appropriation Account format, features with MCQS |
| 9. | Journal Entries of Profit and Loss Appropriation A/c with MCQS |
| 10. | Difference between Profit and Loss A/c and Profit and Loss Appropriation A/c with MCQS |
