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?

Dissolution by agreement

The correct answer is option 1- dissolution by agreement.

"On 31st March,2023 they all decided to dissolve the firm due to continuous losses." This indicates a mutual consent among all partners to end the business. So, the correct answer is dissolution by agreement.

In case of Dissolution by Agreement: A firm is dissolved :
(a) with the consent of all the partners or
(b) in accordance with a contract between the partners.