Question

Abhay, Boris and Chetan were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Boris was guaranteed profit of ₹ 95,000. Any deficiency on account of this was to be borne by Abhay and Chetan equally. The firm earned a profit of ₹ 2,00,000 for the year ended 31st March, 2023. The amount given by Abhay to Boris as guaranteed amount will be:

• A. ₹ 17,500.
• B. ₹ 35,000.
• C. ₹ 25,000.
• D. ₹ 10,000.

Hint:

When solving guarantee questions always calculate the actual share first. The guarantee only "kicks in" if the actual share is lower than the promised amount.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
A "Guarantee of Profit" is an assurance that a partner will receive a minimum amount of profit. If their actual calculated share is less than this minimum, the "deficiency" must be covered by the other partners (guarantors) in an agreed-upon ratio.
Step 2: Key Formula or Approach:
1. Calculate the guaranteed partner's actual share using the normal Profit Sharing Ratio.
2. Calculate the deficiency: \( \text{Guaranteed Amount} - \text{Actual Share} \).
3. Allocate the deficiency to the guarantor(s) based on the guarantee ratio.
Step 3: Detailed Explanation:
1. Calculate Boris's actual share:
- Total Firm Profit = 2,00,000.
- Boris's ratio = 3 parts out of 10 (\( 5+3+2 \)).
- Boris's Share = \( 2,00,000 \times \frac{3}{10} = 60,000 \).
2. Calculate the total deficiency:
- Guaranteed profit = 95,000.
- Actual share = 60,000.
- Deficiency = \( 95,000 - 60,000 = 35,000 \).
3. Determine amount borne by Abhay:
- Deficiency sharing ratio (Abhay : Chetan) = 1 : 1 (equally).
- Abhay's share of deficiency = \( 35,000 \times \frac{1}{2} = 17,500 \).
Step 4: Final Answer:
Abhay will contribute 17,500 from his share of profit to fulfill the guarantee to Boris.
Therefore, the correct option is (a).