Accounting for Partnership: Basic Concepts — Part 2: Guarantee, Past Adjustments and Goodwill: visual lesson, CBSE Class 12 Accountancy

Lesson

Guarantee, past adjustments and goodwill

Part 2 — guarantee of profit, past adjustments, and goodwill: its nature and its valuation.

In this lesson you will

Account for a guarantee of minimum profit given by the firm or by particular partners, and for a guarantee given to the firm
Correct omissions and errors of a closed year with a single adjustment entry
Explain the nature of goodwill and the factors affecting it, and value it by the average profit, weighted average, super profit and capitalisation methods

Part 2 at a glance

Concept

Guarantee of minimum profit

Guarantee by the firm: all the other partners bear the deficiency in their mutual ratio.
Guarantee by one partner: that partner bears all of it.
Guarantee by some partners in an agreed ratio: they bear it in that ratio.

The firm's total profit never changes.

Worked example

Worked example 1: guarantee by the firm

Konark Tiles, an imagined firm in Puri. Dev, Esha and Pranav share profits 2:2:1. The firm guarantees Pranav a minimum profit of ₹60,000. Profit for 2025-26: ₹2,40,000.

Table of worked example 1: shares of 96,000, 96,000 and 48,000 rupees; Pranav's deficiency of 12,000 is borne equally by Dev and Esha, giving final shares of 90,000, 90,000 and 60,000 rupees
Particulars	Dev (₹)	Esha (₹)	Pranav (₹)
Share of profit 2:2:1	96,000	96,000	48,000
Deficiency borne by Dev and Esha 2:2	− 6,000	− 6,000	12,000
Final share	90,000	90,000	60,000

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