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Accounting for Guarantee in partnership

Vijayakumar V.
18/08/2018 0 0

Guarantee of specific  profits to a partner by the firm or any one or more partners is to attract a qualified professional into partnership to capitalize his/her skills or reputation earned by him/her to the advantage of the firm. 

 

A specific clause is agreed in the partnership deed whereby guarantee of profit is specified. 

Ex:

A, B and C are partners sharing profits and losses equally.  Partner C is guaranteed with a minimum share of profit of 50000.

Suppose that the profits for the year 2017-2018 is 120000. Each partner shall get 40000 as profit share. However,  C shall get 10000 more to attain min guaranteed profit of 50000. Thus A and B sacrifice 5000 each from their respective share of profits earned. Below is the final share of profits credited to each partner 

A 35000

B 35000

C 50000

Hope this topic is easy to understand.

 

Regards 

VIJAYAKUMAR V

 

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