Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Dissolution of Partnership Firm

Question:

According to the principle laid down in Garner vs. Murray case, in which ratio the remaining solvent partners will bear the capital loss of the insolvent partner?

Options:

Profit sharing ratio

Loss sharing ratio

Capital ratio

None of these

Correct Answer:

Capital ratio

Explanation:

In the context of settlement of accounts among the partners there is still another important aspect to be noted, i.e., when a partner is unable to contribute towards the deficiency of his capital account (the account finally showing a debit balance), he/she is said to be insolvent, and the sum not recoverable is treated as capital loss for the firm. In the absence of any agreement, to the contrary, such a capital loss is to be borne by the remaining solvent partners in accordance with the principle laid down in Garner vs. Murray case, which states that the solvent partners have to bear such loss in the ratio of their capitals as on the date of dissolution.