Assertion (A): A, B and C are partners sharing profits in the ratio of 3 : 2 : 1. C is given a guarantee that his share of profit in any year will not be less than ₹ 1,00,000 and any deficiency will be met by A and B in 2 : 1. Net Profit for the year amounted to ₹ 6,00,000, and after appropriations, it was ₹ 5,10,000. A will be debited by ₹ 10,000 and B by ₹ 5,000 as shortfall in guaranteed profit to C. Reason (R): Profit share of C will be ₹ 85,000 (₹ 5,10,000 xx $\frac{1}{6}$). Hence deficiency will be ₹ 15,000 and as such A will be debited by ₹ 10,000 (₹ 15,000 xx $\frac{2}{3}$) and B will be debited by ₹ 5,000. In the context of the above two statements, which of the following is correct?

Question

KollegeApply · Accepted Answer

Both (A) and (R) are correct, and (R) is the correct reason of (A). Explanation: Profit available after appropriations = ₹ 5,10,000 Profit-sharing ratio = 3 : 2 : 1 C’s Share of Profit = 5,10,000 xx $\frac{1}{6}$ = ₹ 85,000 C is guaranteed a minimum of ₹ 1,00,000. Deficiency = ₹ 1,00,000 – ₹ 85,000 = ₹ 15,000 Sharing of Deficiency A : B = 2 : 1 A’s share = 15,000 xx $\frac{2}{3}$ = ₹ 10,000 B’s share = 15,000 xx $\frac{1}{3}$ = ₹ 5,000 Thus, A will be debited by ₹ 10,000 and B by ₹ 5,000 to make good the shortfall, and C will receive the guaranteed ₹ 1,00,000. Assertion (A) is correct because A and B bear the deficiency as given. Reason (R) is also correct because it correctly explains the calculation of C’s deficiency and its distribution. Therefore, both are correct, and R is the correct explanation of A.

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