Question

Emily, Farida and Gauri were partners in a firm sharing profits and losses in the ratio of 4:3:1. Farida was guaranteed Rs 35,000 as her share in the profits in the firm. Any deficiency arising on that account was to be met by Emily. The firm earned a profit of Rs 80,000 for the year ended 31st March 2024. The profit credited to Farida's capital account was:

• A. Rs 30,000
• B. Rs 35,000
• C. Rs 25,000
• D. Rs 5,000

Hint:

In guarantee of profit, first calculate the partner's profit share according to the ratio. If this share is less than the guaranteed amount, the partner receives the guaranteed amount. The difference (deficiency) is borne by the guaranteeing partner(s) as per the agreement.

Answer 1

The Correct Option is B

To determine the profit allocated to Farida's capital account, her guaranteed profit is compared against her share derived from the profit-sharing ratio.

Step 1: Calculate each partner's profit share based on the agreed ratio.

The firm's total profit is Rs 80,000.

The profit-sharing ratio for Emily, Farida, and Gauri is 4:3:1.

Partner	Ratio	Share of Profit
Emily	4	(4/8) × 80,000 = Rs 40,000
Farida	3	(3/8) × 80,000 = Rs 30,000
Gauri	1	(1/8) × 80,000 = Rs 10,000

Step 2: Compare Farida's calculated profit share with her guaranteed amount.

Farida's guaranteed profit is Rs 35,000.

Her actual profit share, based on the ratio, is Rs 30,000.

Step 3: Calculate any shortfall and ensure the guaranteed amount is met.

Shortfall = Guaranteed amount - Actual share = Rs 35,000 - Rs 30,000 = Rs 5000.

Emily is responsible for covering any shortfall for Farida. Therefore, an additional Rs 5000 is transferred from Emily's share to Farida's.

Conclusion: The total profit credited to Farida's capital account is Rs 30,000 + Rs 5000 = Rs 35,000.