A Level Accounting (9706)•9706/13/M/J/24
Explanation
Default Rules in Absence of Partnership Agreement
Steps:
- Without a partnership agreement, statutory rules under the Partnership Act apply.
- Review key defaults: no interest on capital or drawings; interest allowed on partners' loans; profits shared equally.
- Compare options to these rules to identify the correct statement.
- Confirm C aligns with the legal provision for loan interest.
Why C is correct:
- The Partnership Act mandates 5% interest on loans advanced by partners to the firm, treating them as creditors.
Why the others are wrong:
- A: No interest on capital is allowed unless specifically agreed.
- B: No interest is charged on drawings unless specified in the agreement.
- D: Profits and losses are shared equally, not in capital contribution ratio.
Final answer: C
Topic: Types of business entity
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