(b) Sameer and Manveer were partners in a firm sharing profits and losses in the ratio of 5 : 3. On 1st April, 2024, they admitted Sandeep as a new partner for 1/5th share in the profits with a guaranteed minimum amount of Rs. 80,000. Sameer and Manveer continue to share profits as before but agreed to bear any deficiency on account of guarantee to Sandeep in the ratio of 3 : 5. The net profit of the firm for the year ended 31st March, 2025 was Rs. 3,20,000.
Prepare Profit and Loss Appropriation Account of Sameer, Manveer and Sandeep for the year ended 31st March, 2025.
(b) Sameer and Manveer were partners in a firm sharing profits and losses in the ratio of 5 : 3. On 1st April, 2024, they admitted Sandeep as a new partner for 1/5th share in the profits with a guaranteed minimum amount of Rs. 80,000. Sameer and Manveer continue to share profits as before but agreed to bear any deficiency on account of guarantee to Sandeep in the ratio of 3 : 5. The net profit of the firm for the year ended 31st March, 2025 was Rs. 3,20,000.
Prepare Profit and Loss Appropriation Account of Sameer, Manveer and Sandeep for the year ended 31st March, 2025.
Working — New Profit-Sharing Ratio: Sandeep is admitted for 1/5th share; the remaining 4/5th continues to be shared by Sameer and Manveer in their old ratio 5 : 3.
Sameer = 4/5 × 5/8 = 5/10; Manveer = 4/5 × 3/8 = 3/10; Sandeep = 1/5 = 2/10
New ratio (Sameer : Manveer : Sandeep) = 5 : 3 : 2
Working — Guarantee Adjustment:
- Sandeep's share as per new ratio = 2/10 × Rs. 3,20,000 = Rs. 64,000
- Guaranteed minimum = Rs. 80,000
- Deficiency = Rs. 80,000 − Rs. 64,000 = Rs. 16,000, borne by Sameer and Manveer in ratio 3 : 5
- Sameer bears = Rs. 16,000 × 3/8 = Rs. 6,000; Manveer bears = Rs. 16,000 × 5/8 = Rs. 10,000
Profit and Loss Appropriation Account for the year ended 31st March, 2025
| Dr. | Amount (Rs.) | Cr. | Amount (Rs.) |
|---|---|---|---|
| To Profit transferred to: | By Profit and Loss A/c (Net Profit) | 3,20,000 | |
| Sameer's Capital A/c (1,60,000 − 6,000) | 1,54,000 | ||
| Manveer's Capital A/c (96,000 − 10,000) | 86,000 | ||
| Sandeep's Capital A/c (64,000 + 16,000) | 80,000 | ||
| Total | 3,20,000 | Total | 3,20,000 |
Marking Scheme
- 11 mark: correct new profit-sharing ratio 5:3:2 and Sandeep's share as per new ratio (Rs. 64,000).
- 21 mark: correct deficiency (Rs. 16,000) and its distribution between Sameer and Manveer in 3:5 ratio.
- 31 mark: correctly formatted Profit and Loss Appropriation Account showing final distribution — Sameer Rs. 1,54,000, Manveer Rs. 86,000, Sandeep Rs. 80,000.
Hint
Derive the new ratio 5:3:2 first, find Sandeep's actual share of profit, compare it with the guaranteed minimum, and split any deficiency between Sameer and Manveer in the given 3:5 ratio.
Quick Oral Answer
When a partner is guaranteed a minimum profit and the ratio-based share falls short, the shortfall (deficiency) is computed and debited to the guaranteeing partners' capital in their agreed ratio, and correspondingly added to the guaranteed partner's share.
Analysis & Explanation
This question tests the guarantee-of-minimum-profit adjustment, a recurring twist on admission-related profit distribution.
Concept: A guarantee only acts as a floor — if a partner's ratio-based share already exceeds the guaranteed amount, no adjustment is needed; here it falls short, so a deficiency arises.
Key step: The new ratio must be derived first (5:3:2), since the deficiency and final shares both depend on it.
Exam trap: The deficiency-bearing ratio (3:5) is independently specified in the deed and is different from the partners' own profit-sharing ratio (5:3) — students must not default to the wrong ratio.
Real-world use: Such guarantees are common when a new partner (often young or less experienced) is admitted, giving them income security during the transition period.
Common Mistakes
- 1Calculating Sandeep's new-ratio share using the old 5:3 ratio instead of first deriving the new ratio 5:3:2 after admission.
- 2Distributing the deficiency in the old profit-sharing ratio (5:3) instead of the specifically agreed deficiency-bearing ratio (3:5).
- 3Crediting the guaranteed minimum directly to Sandeep without showing the deficiency being debited to Sameer and Manveer's shares.
Interesting Facts
A guarantee of minimum profit is commonly given to a newly admitted partner to compensate for the uncertainty of a new venture, and CBSE frequently combines it with admission-related profit-sharing questions.
If the guaranteed partner's share already exceeds the guaranteed amount, no deficiency arises and the normal ratio distribution applies directly — the guarantee only operates as a floor, never a cap.
The deficiency-bearing ratio can be entirely different from the partners' own profit-sharing ratio — the partnership deed is free to specify an independent ratio purely for guarantee purposes.
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Frequently Asked Questions
How is the new profit-sharing ratio calculated when only the new partner's share is given?
The remaining share (1 minus the new partner's share) is divided among the old partners in their existing mutual ratio. Here 4/5th is divided between Sameer and Manveer in 5:3, giving a combined new ratio of 5:3:2.
Who bears the deficiency if the partnership deed is silent on the deficiency-bearing ratio?
If not specified, the deficiency is borne by the guaranteeing (old) partners in their own profit-sharing ratio; here it was explicitly agreed as 3:5, so that ratio is used instead.
What happens if actual profit is too low for the old partners to fully cover the guarantee?
The guaranteeing partners still bear the deficiency according to their agreed ratio even if it results in a very small residual share for them, as the guarantee is a binding contractual promise.