(iii)In case the guaranteed amount (ii) is more, the excess should be deducted from theshare of profit of the Partner given guarantee and calculated under (i) above.The some amount should be added with the original share of profit of the Partner to whom theguarantee has been given.
Illustration 1 :
X and Y are Partners sharing profit as 5:3. Z is the clerk of their business getting a salary of Rs.500 p.m. and a commission of 5% of the net profit after deducting his salary and commission.Now, X guarantee that Z be made a Partners with 1/10
share of profit and nothong clse. If theannual profits is Rs. 1,32,000.
(i)General Application of Profit Z’s Share as clerk :Rs.Salary 500 * 12 6,000Commission 5/105 of [1,32,000 – 6,000]6,00012,000Balance of profit 1,20,000 Shared as : X =5/8 x 1,20,000 = Rs. 75,000 ;Y = 3/8 x 1,20,000 = Rs. 45,000(ii)Minimum guaranteed share of Z = 1/10
of Rs. 1,32,000 = Rs. 13,200(ii)Shortfall = Rs. 13,200 – Rs. 12,000 = Rs. 1200 to be deducted from share and added with Z’sshare.Final appropriation should be –Rs.X : Rs. 75,000 – Rs. 120073,800Y :45,000Z : Rs. 12,000 + Rs. 1200 13,2001,32,000X’s Capital / Current A/c Dr. 1,200To Z’s Capital / Current A/c 1,200(Being Guaranteed share of profits provided
Guarantee given by firm :
(i)The share of profit of the guaranteed Partner is to be calculated according to the profit –sharing ratio.(ii)His minimum guaranteed amount is ascertained.(iii)The higher of (i) and (ii) is given or credited to him.(iv)The remaining profits are shared among the remaining Partners in their remaining ratio.If the minimum guaranteed amount is more, the shortfall may be agreed to be in a ratio spe-cially agreed upon.