Question

In a case where a partner may be guaranteed a minimum amount by way of his share in profits. If in any year, the share of profits is less than the guaranteed amount, the deficiency is made good by the guaranteeing partners' in which ratio?

Options

• Capital ratio

• Profit-sharing ratio

• 1:1

• None of the above

Answer 1

Profit-sharing ratio

Explanation:

A minimum sum may be guaranteed to a partner as part of his profit sharing. If the guaranteeing partners' share of profits is less than the promised amount in any year, the difference is made up by the guaranteeing partners' in the agreed ratio, which is usually the profit-sharing ratio. If any of them has issued such a guarantee, he or she will be solely responsible for the shortcoming.