CAF-4 · Chapter 12 · Question 5 of 10
Tom secretly buys an item of equipment for Rs. 18,000 and then sells it to his own partnership firm for Rs. 30,000 without revealing he was the owner. What is Tom's liability when the other partners discover this?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) He must account for and pay the secret profit of Rs. 12,000 to the firm.
Explanation
A partner has a fiduciary duty not to make a secret profit at the expense of the firm. If a partner makes a secret profit in a transaction with the firm, he must account for it and pay it to the firm.
More Relations of partners to one another MCQs
- Q7Five partners are running a business importing washing machines. One partner wants to change the nature of the business and start…
- Q8Nadir, Rehan, and Saqib have a written agreement to share profits 50:25:25. For the last two years, they distributed profits 70:15:15…
- Q9A partner commits a fraud in the ordinary course of the firm's business, resulting in a severe loss to a client. Who must ultimately bear…
- Q10If a partner advances a loan to the firm beyond their agreed capital contribution, what is their right regarding interest on this advance?
- Q1Which of the following is considered a 'mandatory' general duty of a partner that CANNOT be altered by an agreement among the partners?