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Guarantee of Profit to a Partner Video Lecture | Accountancy Class 12 - Commerce

49 videos|111 docs|56 tests

FAQs on Guarantee of Profit to a Partner Video Lecture - Accountancy Class 12 - Commerce

1. What is a guarantee of profit to a partner in commerce?
Ans. A guarantee of profit to a partner in commerce refers to a contractual agreement where one partner ensures a minimum level of profit to another partner, regardless of the actual financial performance of the business.
2. How does a guarantee of profit benefit a partner in commerce?
Ans. A guarantee of profit provides a sense of financial security to a partner in commerce, as it ensures a minimum level of income regardless of the business's success. This allows the partner to plan and rely on a certain amount of profit, reducing the risk associated with uncertain business outcomes.
3. What factors are considered when determining the guaranteed profit for a partner in commerce?
Ans. Several factors are taken into account when determining the guaranteed profit for a partner in commerce. These may include the partner's level of investment, their contribution to the business, the overall financial health of the company, and the agreed-upon profit-sharing arrangements outlined in the partnership agreement.
4. Can a guarantee of profit be modified or adjusted in the future?
Ans. Yes, a guarantee of profit can be modified or adjusted in the future if both partners agree to the changes. This may be necessary due to changes in business circumstances, such as fluctuations in market conditions or the need to allocate resources differently. Any modifications should be documented in an updated partnership agreement.
5. Are there any risks associated with providing a guarantee of profit to a partner in commerce?
Ans. While a guarantee of profit offers benefits to the partner receiving it, there are potential risks involved for the partner providing the guarantee. If the business fails to generate sufficient profits, the partner may be obligated to cover the shortfall, potentially leading to financial strain or disputes within the partnership. It is crucial for partners to carefully assess the financial feasibility and potential risks before agreeing to provide a guarantee of profit.
49 videos|111 docs|56 tests

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