Under the rule established in Garner v. Murray, how is the deficiency on the capital account of an insolvent partner borne by the solvent partners?
Answer and explanation
Correct answer: A. In the ratio of their capitals standing before dissolution
- Step 1: Recall the landmark English ruling in Garner v. Murray (1904) applicable to partnership dissolution.
- Step 2: Ordinary dissolution losses on realization are shared by all partners in their profit-sharing ratio.
- Step 3: However, the capital deficiency resulting from an insolvent partner must be borne by solvent partners in their capital ratio as standing on the date of dissolution.
Answer
In the ratio of their capitals standing before dissolution.
Practise more Indian Partnership Act 1932: Rights, Duties and Dissolution.
Free questions with an explanation for every one, and full timed CA Foundation mock tests.
More Indian Partnership Act 1932: Rights, Duties and Dissolution questions
- In the absence of any agreement among partners, what rate of interest is payable on an advance or loan given by a partner to the partnership…
- A, B, and C are partners sharing profits in the ratio of 5:3:2. B retires, and his share is acquired equally by A and C. What is the new pro…
- Under Section 48 of the Indian Partnership Act 1932, in what order of priority must the assets of the firm be applied upon dissolution?
- A firm earns an average net profit of ₹80,000. Capital employed in the business is ₹5,00,000, and normal rate of return is 10%. Value goodwi…
- What is the legal effect of the registration of a partnership firm under the Indian Partnership Act 1932?
- A and B are partners sharing profits in the ratio 3:2. They admit C for a 1/5th share. What is the sacrificing ratio of A and B if no other…