Question

Passage: A Solid Partnership A, V and T were partners of a law firm sharing profits in the ratio of 5:3:2. Their partnership deed provided the following:
(i) Interest on partners' capital @ 5% p.a.
(ii) A guaranteed that he would earn a minimum annual fee of Rs. 6,00,000 for the firm.
(iii) T was guaranteed a profit of Rs. 2,50,000 (excluding interest on capital) and any deficiency on account of this was to be borne by A and V in the ratio of 2:3.
During the year ending March 31, 2019, A earned a fee of Rs. 3,20,000 and net profits earned by the firm were Rs. 8,60,000.
Partner's capital on April 01, 2018 were: A = Rs. 3,00,000; V = Rs. 3,00,000 and T = Rs. 2,00,000. % Question What is the amount of A's deficiency of annual fee?

• A. Rs. 2,80,000
• B. Rs. 1,80,000
• C. Rs. 3,80,000
• D. Rs. 4,80,000

Hint:

In partnership accounts, first distribute interest on capital, then profit in the ratio, and finally adjust for guaranteed amounts and deficiencies.

Answer 1

The Correct Option is A

Step 1: Compute interest on capital.
- A's Capital = Rs. 3,00,000 $\Rightarrow$ Interest = \( 3,00,000 \times 5% = Rs. 15,000 \)
- V's Capital = Rs. 3,00,000 $\Rightarrow$ Interest = \( 3,00,000 \times 5% = Rs. 15,000 \)
- T's Capital = Rs. 2,00,000 $\Rightarrow$ Interest = \( 2,00,000 \times 5% = Rs. 10,000 \)
Total Interest on Capital = Rs. 40,000.

Step 2: Distribute profit before guarantees.
Total Net Profit = Rs. 8,60,000
Less: Interest on Capital = Rs. 40,000
Balance Profit = Rs. 8,20,000
This balance is shared in ratio 5:3:2.
- A = \( 8,20,000 \times \frac{5}{10} = Rs. 4,10,000 \)
- V = \( 8,20,000 \times \frac{3}{10} = Rs. 2,46,000 \)
- T = \( 8,20,000 \times \frac{2}{10} = Rs. 1,64,000 \)

Step 3: Apply guarantee to T.
T is guaranteed Rs. 2,50,000 (excluding interest). Actual profit = Rs. 1,64,000.
Deficiency = \( 2,50,000 - 1,64,000 = Rs. 86,000 \).
This deficiency is to be borne by A and V in the ratio 2:3.
- A's share = \( 86,000 \times \frac{2}{5} = Rs. 34,400 \)
- V's share = \( 86,000 \times \frac{3}{5} = Rs. 51,600 \)
Final profit shares:
- A = \( 4,10,000 - 34,400 = Rs. 3,75,600 \)
- V = \( 2,46,000 - 51,600 = Rs. 1,94,400 \)
- T = \( 1,64,000 + 86,000 = Rs. 2,50,000 \)

Step 4: Consider A's guarantee of Rs. 6,00,000 fee.
Actual fee earned by A = Rs. 3,20,000.
Guaranteed fee = Rs. 6,00,000.
Deficiency = \( 6,00,000 - 3,20,000 = Rs. 2,80,000 \).

Final Answer: \[ \boxed{\text{A's deficiency of annual fee = Rs. 2,80,000}} \]