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Class 12AccountancyPartnership Accounts - Basic ConceptsProfit DistributionHard
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Guarantee deficiency was treated as extra firm expense and debited to appropriation account. Why is this wrong?

Answer and explanation

Correct answer: It is internal redistribution of profit among partners

Guarantee deficiency does not change total profit. It is an adjustment between guaranteed and guaranteeing partners.

Related tags

Guarantee DeficiencyRedistributionErrorProfit DistributionPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq
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10 more MCQs
  1. 1If the partnership deed says profit will first be transferred to reserve, what type of adjustment is this?
  2. 2A is guaranteed a minimum profit of rupees twenty thousand. His actual share of profit is rupees seventeen thousand. What is the deficiency?
  3. 3If the deed requires fixed capitals in which account will appropriations like salary and interest be recorded?
  4. 4The deed says interest on drawings is credited to the Profit and Loss Appropriation Account. Why is it credited?
  5. 5The deed provides a monthly salary of Rs 6,000 to partner A and equal profit sharing. Where will the annual salary appear?
  6. 6If the deed says profit will first be transferred to reserve and then shared among partners, what is the first step?
  7. 7If the deed allows A a twenty percent commission on profit before distributing the remaining profit, what is the nature of this item?
  8. 8The deed gives B a firm guarantee of minimum profit of Rs 15,000. Total profit is Rs 60,000 and B’s normal share is Rs 12,000. By how much will profit available to other partners reduce?
  9. 9What is the main basis of profit distribution in partnership?
  10. 10If the partnership deed does not provide profit sharing ratio how will profit be distributed?
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