The document contains 5 illustrations of profit and loss appropriation accounts where partners are given guarantees of minimum profit. 1) Suresh is guaranteed a minimum profit of Rs. 30,000 which is distributed from the other partners' shares. 2) Savitha is guaranteed Rs. 15,000 with any deficiency borne by Manitha. 3) Siva is guaranteed Rs. 5,000 with any deficiency shared equally by Vishnu and Jayan. 4) Danny is guaranteed a minimum of Rs. 52,500 after interest, with any deficiency borne by Jimmy. 5) Mohan joins as a partner and is guaranteed any excess over his manager compensation, paid by Shyam.

1. Guarantee of Profit to a
Partner
Prepared By
PRASANTH.S.R

2. Sometimes , on admission of a new partner ,
the existing partners may give an assurance to the
incoming partner that he shall be given a minimum
amount of profit irrespective of the firm’s actual
profit. Even if there is no profit or profit falls short
of guaranteed minimum amount, the newly
admitted partner enjoys the privilege of getting the
guaranteed amount. If it is so, then the deficiency is
borne by any one or by all other partners in their
profit sharing ratio.
Guarantee of Profit to a Partner

3. Sanju, Jithu and Suresh are partners in
the ratio of 5:3:2. According to the agreement
Suresh was given a guarantee of minimum
amount of Rs.30000, as his share of profit
every year. The profit of last year 2011 was
Rs.120000. Divide the profit among Sanju,
Jithu and Suresh by preparing profit and loss
appropriation account.
Illustration – 1
[ Guarantee given by the firm ]

5. Particulars Amount Particulars Amount
To Profit transferred to
Capital accounts
Sanju Capital 60000
-given to C 3750
Jithu's Capital 36000
-given to C 2250
Suresh's Capital 24000
+from Sanju 3750
+from Jithu 2250
56250
33750
30000
By Net profit as per
Profit and loss a/c 120000
120000 120000
Profit and Loss Appropriation Account
for the year ended Dec. 31,2011
Dr. Cr.

6. Kavitha, Manitha and Savitha were partners
in the ratio of 2:2:1. Savitha is given a guarantee of
profit amounted to Rs.15000 as her share of profit
every year. It was decided that any deficiency will
be met by Manitha . the profit for the year
December 2010 ending was Rs.60000. Prepare the
profit and loss appropriation account for the year.
Illustration – 2
[ Guarantee of Profit by one partner ]

7. Particulars Amount Particulars Amount
To Profit transferred to
Capital accounts
Kavitha’s Capital
= 60000 × 2 = 24000
5
Manitha's Capital
= 60000 × 2 = 24000
5
-given to Savitha 3000
Manitha's Capital
= 60000 × 1 = 12000
5
+given by Savitha 3000
24000
21000
15000
By Net profit as per
Profit and loss a/c 60000
60000 60000
Profit and Loss Appropriation Account
for the year ended Dec. 31,2010
Dr. Cr.

8. Vishnu , Jayan & Siva are partners sharing
profit in the ratio of 5:4:1. Siva is given a guarantee
that his share of profit in any year would be Rs.5000.
Deficiency if any would be borne by Vishnu and
jayan Equally. The profit for the year amounted to
Rs.40000. Prepare profit and loss appropriation
account.
Illustration – 3 [ When Deficiency is
shared by old Partners in the ratio
other than their existing ratio]

9. Particulars Amount Particulars Amount
To Profit transferred to Capital
accounts
Vishnu’s Capital
= 40000 × 5 = 20000
10
Less given to Siva = 500
Jayan's Capital
= 40000 × 4 = 16000
10
Less given to Siva = 500
Shiva’s Capital
= 40000 × 1 = 4000
10
+given by Vishnu = 500
+given by Jayan = 500
19500
15500
5000
By Net profit as per
Profit and loss a/c 40000
40000 40000
Profit and Loss Appropriation Account
for the year ended Dec. 31,2011
Dr. Cr.

10. Jimmy , Sunny and Danny started
partnership business on 1st January 2014 in the ratio
of 5:3:2. Jimmy guaranteed that Danny’s share of
profits after sharing interest on capital @ of 5% per
annum, would not be less than Rs.52500 in any year.
The capital at the commencement of business was
Jimmy – Rs.560000, Sunny – Rs.350000 and Danny –
Rs.280000. the profits of the year ended 31st
December 2014 amounted to Rs. 278250 before
providing for interest on capital . You are required to
prepare profit and loss appropriation account.
Illustration – 4 [Minimum Profit
guarantee after adjustments in profits]

11. Particulars Amount Particulars Amount
To interest on capital
Jimmy 28000
Sunny 17500
Danny 14000
To Profit transferred to Capital
accounts
Jimmy’s Capital
= 218750 × 5 = 109375
10
Less given to Danny = 8750
Sunny's Capital
= 218750 × 3 = 65625
10
Danny’s Capital
= 218750 × 2 = 43750
10
+given by Jimmy = 8750
59500
100625
65625
52500
By Net profit as per
Profit and loss a/c 278250
278250 278250
Profit and Loss Appropriation Account for the
Dr. year ended Dec. 31,2014 Cr.

12. Ram and Shyam were partners in the ratio 3:2 .
Mohan was their manager, they decided to take Mohan as a
partner with effect from 1st January 2009 for ¼ th share in the
profits. Mohan was getting a salary of RS.43200 per annum
and a commission of 10% of the net profits after charging
such salary and commission when he was a manager. It was
agreed that any excess amount which will be given to
Mohan as a partner than the amount he was getting as
manager would be personally borne by Shyam. Profit for the
year 31st December 2009 was Rs.360000 before salary and
commission. Prepare their profit and loss appropriation
account.
Illustration – 5
[ Manager becoming Partner ]

14. Particulars Amount Particulars Amount
To Profit transferred to Capital
accounts
Ram’s Capital
= 288000× 3 = 172800
5
Shyam's Capital
= 288000 × 2 = 115200
5
Less given to mohan = 18000
Mohan’s Capital
= 360000 × 1 = 43750
4
172800
97200
90000
By Net profit as per
Profit and loss a/c 360000
360000 360000
Profit and Loss Appropriation Account
for the year ended Dec. 31,2014
Dr. Cr.