A, R and M were partners in a firm engaged in event management for over 8 years, sharing profits and losses in the ratio of 4:4:2. Due to the decline in demand and rising costs after the economic slowdown, the firm began suffering continuous losses. On 31st March, 2025, they mutually decided to dissolve the partnership and wind up the business.

What is the mode of dissolution of the firm followed by A, R and M?

Dissolution by agreement

The correct answer is option 1- Dissolution by agreement.

All the partners (A, R, and M) mutually agreed to dissolve the firm. There is no court intervention, and the dissolution is based on their own decision. It is a voluntary dissolution, and hence falls under Dissolution by Agreement.

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.