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 credited to Farida's capital account, we need to compare her guaranteed profit with what she would receive based on the profit-sharing ratio.

Step 1: Determine the actual profit for each partner based on the profit-sharing ratio.

Total profit earned by the firm = Rs 80,000.

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

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 actual profit share to her guaranteed amount.

Guaranteed profit for Farida = Rs 35,000.

Actual profit credited, based on ratio = Rs 30,000.

Step 3: Calculate deficiency and ensure guaranteed amount is met.

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

Emily is to cover any deficiency for Farida. Therefore, an additional Rs 5000 will be transferred from Emily's share to Farida's.

Conclusion: Profit credited to Farida's capital account = Rs 30,000 + Rs 5000 = Rs 35,000.