Question

Choose the correct sequence of various types of guarantees of profit used while preparing profit and loss appropriation account by a partnership firm.

(P) Guarantee given by the firm to partners

(Q) Guarantee given by a partner to the firm

(R) Guarantee given by a partner to another partner

Options

• P, Q, R

• Q, P, R

• R, P, Q

• Q, R, P

Answer 1

Q, P, R

Explanation:

The guarantee given by a partner to the firm is adjusted first, then the guarantee given by the firm to its partners, and finally the guarantee given by one partner to another. This procedure is followed because the guarantee impacting the entire firm’s profit (Q) must be resolved before proceeding to guarantees affecting individual partners. After adjusting the firm-level guarantee, the next stage is to fulfil the firm’s promise to specific partners (P). Only after these two levels have been determined do we change the personal guarantee between partners (R), which is internal and impacts only the partners concerned, not the firm's overall profit.