Assertion (A) : When all the partners or all the partners except one, become insolvent then the firm may not be dissolved.
Reason (R) : There is a compulsory dissolution, when all or all except one partner become insolvent or business becomes unlawful.
Answer & explanation
Correct answer: option 2
Compulsory Dissolution: A firm is dissolved compulsorily in the following cases: (a) when all the partners or all but one partner, become insolvent, rendering them incompetent to sign a contract; (b) when the business of the firm becomes illegal; or (c) when some event has taken place which makes it unlawful for the partners to carry on the business of the firm.