Read the following information carefully and answer the next five questions.
G, K and B were partners running a partnership for last 10 years, sharing profit and loss in the ratio of 5:3:2. Post Covid, their firm was affected badly and started incurring losses. On 31st March,2023 they all decided to dissolve the firm due to continuous losses. Their capital balances were ₹4,00,000, ₹3,00,000 and ₹2,00,000 respectively. Firm had liabilities ₹80,000, cash balance ₹40,000, other sundry assets ₹8,50,000 and P&L A/c constituted the rest. Assets realised at 80% and liabilities were paid in full. There was unrecorded liability of ₹50,000 which was settled at ₹40,000. Realisation expenses amounted to ₹30,000 being paid by G on behalf of the firm.
What is the mode of dissolution of the firm followed by G, K and B?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Dissolution by agreement
G, K and B “all decided” to dissolve the firm. A dissolution made with the consent of all the partners is a dissolution by agreement; no court, notice or event forced it.
Why the other options are incorrect
Option (2) On happening of certain contingencies — Incorrect. This covers events such as expiry of the fixed term, completion of the venture, or death or insolvency of a partner; none of these happened.
Option (3) Dissolution by notice — Incorrect. This applies to a partnership at will, where one partner gives written notice of his intention to dissolve; here all decided together.
Option (4) Compulsory dissolution — Incorrect. It arises when all or all but one partner become insolvent, or the business becomes unlawful. Continuous losses do not make it compulsory.
NCERT (2026-27 edition): |