Q1.

Discuss the mutual rights and duties as between the partners in the
absence of any express contract between them.
Answer:
The following provisions affect the accounting treatments in the absence of an
agreement in that respect.
(a)

Partners Share of Profits

In the absence of an agreement between the partners, they would share profits and
losses equally among themselves (and not in the ratio of their capital contributions).
If there is an agreement between the partners then the shares would be decided
according to the agreement.
i.)
ii.)
iii.)

Separate Ratios for Profits and Losses - The partners may decide
that profits be shared in a certain ratio and losses in another ratio.
Share in Profits only - The partners may decide that one or more
partners may share profits and will not have to share losses at all.
Share in Losses only - There is no provision for one or more partners
may sharing only losses and not sharing any profits. Partnership would
exist only where there is a business and the partners have agreed to share
the profits of the business.

(b)
Remuneration to Partners
In the absence of an agreement between the partners, a partner is not entitled to
receive any remuneration (salary, commission, brokerage etc.,) for the services
rendered by him to the firm.
If there is an agreement between the partners then the partner may receive such
remuneration as agreed upon.
(c)

Interest on Capital

In the absence of an agreement between the partners, a partner is not entitled to

receive any interest on Capital even there is a variation in the profit sharing ratio
and the capital contribution.
If there is an agreement between the partners then interest is to be paid at the
rates agreed upon.
i.)

Interest to be paid only out of Profits - Even where the agreement

provides for payment of interest on capital, it will not be paid if there are
losses.

(d)
Interest on Drawings
No specific mention is made about drawings in the act. Therefore, it is assumed that
the provisions that are applicable for Capital would also be applicable for Drawings,
whereby, in the absence of an agreement between the partners, a partner is not
entitled to pay any interest on Drawings.
If there is an agreement between the partners then interest is to be charged at the
rates agreed upon.

(e)

Interest on Partners Loans or Advances

In the absence of an agreement between the partners, a partner is entitled to

receive interest at the rate of 6% p.a. on any payment or advance made beyond the
amount of Capital he has to contribute.
If there is an agreement between the partners then interest is to be paid at the
rates agreed upon.