When a new partner is admitted to a firm with a guaranteed minimum amount by way of their share of profits, who bears the responsibility of paying the guaranteed amount if the partner's actual share of profit falls short?
Answer & explanation
Correct answer: option 2
At times, when a partner joins a firm, they may receive a guarantee of a specific minimum amount as their share of profits. This guarantee can be provided by all existing partners in a predetermined ratio or by any individual existing partner. If the new partner's actual share of profit, based on the agreed profit sharing ratio, falls below the guaranteed amount, they will be entitled to receive the minimum guaranteed amount.