Guarantee of Profit to a Partner, Past Adjustments. Guarantee means the surety of a particular amount of profits by one or more partners and in some cases by the firm, where the burden of guarantee is borne by the party providing such a guarantee.

Key Notes - Accounting for partnership firms: Fundamentals

Guarantee of Profit to a Partner
In a partnership firm, partners may agree to provide a guarantee of profit to one or more partners. This guarantee ensures that the partner will receive a specified amount of profit, regardless of the actual performance of the business.

Details of Guarantee
- The guarantee of profit is usually stated in the partnership agreement and can vary depending on the terms agreed upon by the partners.
- The guaranteed profit may be a fixed amount or a percentage of the partnership's profits.
- The guarantee may be for a specific period of time or for the duration of the partnership agreement.

Accounting Treatment
- The guaranteed profit to a partner is treated as an appropriation of profits and is deducted from the total profits of the partnership before the remaining profits are distributed among the partners.
- The guaranteed profit is debited to the partner's capital account and credited to the profit and loss appropriation account.
- If the partnership incurs a loss, the partner with the guaranteed profit will still receive the specified amount, and the loss will be borne by the other partners according to their profit-sharing ratios.

Impact on Partners' Capital Accounts
- The guaranteed profit will increase the partner's capital account, reflecting their entitlement to the specified amount of profit.
- If the partnership incurs a loss, the partner's capital account will not be reduced by the loss, as they are guaranteed a certain level of profit.
In conclusion, a guarantee of profit to a partner provides them with a sense of security and ensures a consistent income, regardless of the business's performance. This arrangement should be clearly outlined in the partnership agreement to avoid any misunderstandings or disputes in the future.