Read the following passage and answer the questions.
A Solid Partnership
A, V and T were partners of a law firm sharing profits in the ratio of 5:3:2. Their partnership deed provided the following:
(i) Interest on partners' capital @ 5% p.a.
(ii) A guaranteed that he would earn a minimum annual fee of ₹6,00,000 for the firm.
(iii) T was guaranteed a profit of ₹2,50,000 (excluding interest on capital) and any deficiency on account of this was to be borne by A and V in the ratio of 2:3.
During the year ending March 31, 2019, A earned a fee of ₹3,20,000 and net profits earned by the firm were ₹8,60,000.
Partner's capital on April 01, 2018 were A - ₹3,00,000; V - ₹3,00,000 and T- ₹2,00,000.
What is the amount of T's deficiency in profits?
Answer & explanation
Correct answer: option 2
The correct answer is option 2- ₹30,000.
*** Partner's capital on April 01, 2018 were A - ₹3,00,000; V - ₹3,00,000 and T- ₹2,00,000. Interest on partners' capital @ 5% p.a.
Interest on Capital:
A = 3,00,000 X 5/100
= 15,000
V = 3,00,000 X 5/100
= 15,000
T = 2,00,000 X 5/100
= 10,000
*** Divisible profit = Net profit + Deficiency brought by A - Interest on capital
= 8,60,000 + 2,80,000 - 40,000
= 11,00,000
This is distributed between partners in their profit sharing ratio. A, V and T = 5:3:2.
A's share in profit = 11,00,000 x 5/10
= 5,50,000
V's share in profit = 11,00,000 x 3/10
= 3,30,000
T's share in profit = 11,00,000 x 2/10
= 2,20,000
T was guaranteed a profit of ₹2,50,000 (excluding interest on capital) and any deficiency on account of this was to be borne by A and V in the ratio of 2:3.
T's deficiency = 2,50,000 - 2,20,000
= 30,000