Read the following passage and answer the questions

A Solid Partnership

A, V and T were partners of a law firm sharing profits in the ratio of 5:3:2. Their partnership deed provided the following:

(i) Interest on partners' capital @ 5% p.a.

(ii) A guaranteed that he would earn a minimum annual fee of Rs. 6,00,000 for the firm.

(iii) T was guaranteed a profit of Rs. 2,50,000 (excluding interest on capital) and any deficiency on account of this was to be borne by A and V in the ratio of 2:3.

During the year ending March 31, 2019, A earned a fee of Rs. 3,20,000 and net profits earned by the firm were Rs. 8,60,000. Partner's capital on April 01, 2018 were A - Rs. 3,00,000; V - Rs. 3,00,000 and T- Rs. 2,00,000.

Q.) What is the amount of A's deficiency of annual fee?

The correct option is Rs. 2,80,000.

Step-by-Step Explanation:

To find the deficiency in the annual fee guaranteed by partner A, we need to compare the amount of fee he guaranteed to earn for the firm against the actual fee he earned during the year.

1. Identify the Guaranteed Amount:
According to the partnership deed, partner A guaranteed that he would earn a minimum annual fee of Rs. 6,00,000 for the firm.

2. Identify the Actual Amount Earned:
During the year ending March 31, 2019, the actual fee earned by partner A was Rs. 3,20,000.

3. Calculate the Deficiency:
The deficiency is the difference between the guaranteed fee and the actual fee earned by the partner. The formula is:

$$\text{Deficiency of Fee}=\text{Guaranteed Fee}-\text{Actual Fee Earned}$$

Substituting the values into the formula:

$$\text{Deficiency of Fee}=\text{Rs.}\mathrm{6,00,000}-\text{Rs.}\mathrm{3,20,000}$$

$$\text{Deficiency of Fee}=\text{Rs.}\mathrm{2,80,000}$$

Thus, partner A has a deficiency of Rs. 2,80,000 in his guaranteed annual fee. This deficiency will be charged to A's Capital Account and credited to the Profit & Loss Appropriation Account of the firm.