Question

1. Mr.Ashok and Mr.Babu were two sole proprietors’ doing similar business.
They were competing each other and in order to attract customers towards
them, they indulged themselves in reducing price of their commodity.
Consequently, their profit margin reduced and gradually were facing loss.
One fine day they met each other and decided to do the business jointly as
a partnership firm with the intention of avoiding competition and earn more
profit.
The smooth and successful running of a partnership firm requires a clear
understanding among its partners regarding the various policies governing
their partnership. The partnership deed (agreement in writing) serves this
purpose. The partnership deed brings clarity to the partners with regard to
profit/loss sharing, salary, interest on capital, drawings, admission of a new
partner, etc.
Though issuing a partnership deed is not mandatory, they both felt it is
better to enter into a partnership deed to avoid any possible disputes and
litigation among them in future. Hence, they approached an Auditor to draft
a partnership deed for them

Answer 1

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