Question

Majid and Rashid are partners in a firm. Their capital accounts as on 1^st April 2019 showed a balance of OMR 100,000 and OMR 200,000 respectively. On 1^st July 2019 Majid introduced additional capital of OMR 40,000 and Rashid OMR 50,000. On 1^st October Majid withdrew OMR 20,000 and 1^st January 2020 Rashid withdrew OMR 10,000 from their capitals. Interest on capital is 6% and interest on drawings is 8% per annum the accounting period ends on March 31^st every year.

1. Calculate interest on capital of both the partners during the year 2019-2020.   (4 marks)
2. What is the meaning of treatment of guarantee of minimum profit to a partner? (1 mark)

Answer 1

b.) Guarantee means the surety of a particular amount of profits by one or more partners and in some cases by the firm, where the burden of guarantee is borne by the party providing such a guarantee. In other words, it is a minimum fixed amount for the partner who is given such a guarantee.

If the actual share in profits is less than the guaranteed amount then the deficit amount shall be borne either by the firm or by any partner as the case may be. There are many ‘Adjustments’ which a firm will do in such a case. If the actual share in profits is more than the minimum guarantee amount then the firm will provide the actual profits to the partner.

Thankyou.....