Question

A and B were partners in a firm sharing profits and losses in the ratio of 3:2. They admit C

for 1/6th share in profits and guaranteed that his share of profits will not be less then Rs. 25,000.

Total profits of the firm for the year ended 1st March, 2015 were Rs. 90,000. Calculate share of

profits for each partner when Guarantee is given by A.​

Answer 1

GIVEN: A and B share profit in the ratio of 3:2; C is admitted for 1/6 share; guarantee of C's profit = 25,000;  total profit of firm = 90,000

TO FIND: Profit borne by each partner

SOLUTION:

First, we will calculate the new profit sharing ratio of the firm after C's admission.

Total profit of the firm = 1

C's share = 1/6

The remaining share of the partner = 1 - $\frac{1}{6}$

                                                    = 5/6

New profit sharing ratio of A = $\frac{3}{5}$ × $\frac{5}{6}$

                                                 = $\frac{15}{30}$

New profit sharing ratio of B= $\frac{2}{5}$ × $\frac{5}{6}$

                                             = $\frac{10}{30}$

The profit-sharing ratio of C = $\frac{1}{6}$ × $\frac{5}{5}$

                                        = $\frac{5}{30}$

The profit-sharing ratio of A, B and C = 15 : 10 : 5

                                                       = 3 : 2 : 1

Profit of the firm = 90,000

Profit of A = 90,000 × $\frac{3}{6}$

                  = 45,000

Profit of B = 90,000 × $\frac{2}{6}$

                  = 30,000

Profit of C = 90,000 × $\frac{1}{6}$

                = 15,000

Profit of C = 15,000 + 10,000

                   = 25,000

The guarantee was given by A to C that his profit will not be less than 25,000 and now his profit is 15,000 so deficiency of 10,000 will be born by A and his profit will be reduced by 10,000

Profit of A = 45,000 - 10,000

                = 35,000

Profit of A: B: C = 35,000 : 30,000 : 25,000