Sometimes, as per agreement, a new partner can be admitted with a minimum guaranteed amount of share in profit while distributing the profits of the firm. In other words, a minimum amount of profit is guaranteed to a newly admitted partner even if there is no profit or his share of profit falls short of the minimum guaranteed amount. Such guarantee may be provided by the firm, or one or more than one partner in the existing profit sharing or in some other agreed ratio.
Guarantee By The Firm
When a minimum amount of profit to be credited to the new partner is guaranteed by all the partners/firm, we have to calculate, first the two figures: 1. minimum guaranteed amount and 2. new partner's share of profit as per profit sharing ratio. Of the two figures, the higher one is credited to the new guaranteed partner. Then, the balance of profit will be shared by the remaining partners in their profit sharing ratio.
Guarantee By One Or More Than One Partners
When the guarantee of minimum profit to the new partner is provided by one or more than one partner, firstly, we have to calculate the share of profits among the partners as if there is no guarantee. Secondly, if the share of the new partner is less than the minimum guaranteed amount, the deficiency is to be fulfilled by deducting the original share of partner/partners who gave the guarantee.