Accountancy Part AAccounting for Partnership

In the case of guarantee of profit,the sequence of Steps to be follow…

In the case of guarantee of profit,the sequence of Steps to be followed are:

(A) divide the profit in the given ratio.

(B) prepare profit and loss appropriation account as usual.

(D) find the deficiency.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (B), (A), (D), (C)

When a partner is guaranteed a minimum profit, the profit is first divided in the usual way and any shortfall in his share is made good by the partner(s) who gave the guarantee.

(B) prepare profit and loss appropriation account as usual. — First the appropriation account is prepared as usual to arrive at the divisible profit.

(A) divide the profit in the given ratio. — The profit is then divided in the profit sharing ratio.

(D) find the deficiency. — The guaranteed partner’s share is compared with the guaranteed amount to find the deficiency.

(C) deduct the deficiency from guaranteeing partner and add the same to guaranteed partner. — Finally the deficiency is borne by the guaranteeing partner(s) and added to the guaranteed partner’s share.

NCERT (2026-27 edition):
Terms Introduced in the Chapter – “… 6. Treatment of guarantee of minimum profit to a partner: Sometimes, a partner may be guaranteed a minimum amount by way of his share in profits. If, in any year, the share of profits as calculated according to his profit sharing ratio is less than the guaranteed amount, the deficiency is made good by the guaranteeing partners’ in the agreed ratio which usually is the profit sharing ratio. If, however, such guarantee has been given by any of them, he or they alone shall bear the amount of deficiency.”