Solution
A guaranteed a minimum annual fee of Rs. 6,00,000 for the firm, but actually earned only Rs. 3,20,000.
Deficiency = Rs. 6,00,000 - Rs. 3,20,000 = Rs. 2,80,000
This deficiency is borne by A himself, so effective profit increases by Rs. 2,80,000.
Adjusted Net Profit = Rs. 8,60,000 + Rs. 2,80,000 = Rs. 11,40,000
Interest on capital @ 5% p.a.:
A = Rs. 15,000
V = Rs. 15,000
T = Rs. 10,000
Total interest on capital = Rs. 40,000
Profit available for distribution after interest on capital:
Rs. 11,00,000
Distribution in the ratio 5:3:2:
A's share Rs. 5,50,000
V's share Rs. 3,30,000
T's share Rs. 2,20,000
T was guaranteed a minimum profit of Rs. 2,50,000 (excluding interest on capital).
T's current share = Rs. 2,20,000
Deficiency = Rs. 2,50,000 - Rs. 2,20,000 = Rs. 30,000
This deficiency is borne by A and V in the ratio 2:3:
A bears Rs. 12,000
V bears Rs. 18,000
A's profit share after T's guarantee:
Rs. 5,38,000
A also bears the deficiency of his own guarantee of Rs. 2,80,000:
Rs. 2,58,000
Total amount credited to A's Capital Account:
Interest on capital = Rs. 15,000
Profit share = Rs. 5,38,000
Total =
Wait — the guarantee deficiency of Rs. 2,80,000 was already added to the net profit. A's share of profit from this adjusted profit already accounts for his bearing.
Since the firm's profit was increased by Rs. 2,80,000 (A's guarantee deficiency added back), and then A receives his share from the adjusted profit, A effectively bears this deficiency through the adjusted distribution.
Profit credited to A's Capital Account (excluding interest on capital) = Rs. 5,38,000
Total credited to A's Capital Account = Rs. 5,38,000
The correct answer is Rs. 5,38,000.