When will the minimum guaranteed amount be paid to partner in case of Guarantee of Profit to a Partner?
Answer & explanation
Correct answer: option 1
The correct answer is option 1- Profit as per the profit sharing ratio is less than the guaranteed amount.
The minimum guaranteed amount shall be paid to a partner when his share of profit as per the profit sharing ratio is less than the guaranteed amount.
Sometimes a partner is admitted into the firm with a guarantee of certain minimum amount by way of his share of profits of the firm. Such assurance may be given by all the old partners in a certain ratio or by any of the old partners, individually to the new partner. The minimum guaranteed amount shall be paid to such new partner when his share of profit as per the profit sharing ratio is less than the guaranteed amount.