A, B, C and D are partners sharing profits and losses in the ratio of 3 : 3 : 2 : 1. The partnership is dissolved and D becomes insolvent. C brings only the share of loss and shows his inability toI contribute anything towards D's deficiency. According to Garner vs. Murray ruling, D's deficiency in total will be shared by _____________________.
The correct option is C A, B and C in their capital ratio
Garner Vs Murray: Loss by Insolvent Partner (Dissolution of Partnership Firm)!
If, at the time of dissolution, a partner owes a sum of money to the firm, he has to pay it to the firm. But if he is insolvent, he will not be able to do so, at least lot fully. The sum which is irrecoverable from an insolvent partner is, therefore, a loss. The question arises whether this loss is an ordinary loss to be shared by the solvent partners in the profit sharing ratio or whether it is an extraordinary loss. Before the decision in Garner vs. Murray was made, such a loss was treated as an ordinary loss.
The judgment in this case was that:
(a) First, the solvent partners should bring in cash equal to their respective shares of the loss on realisation; and
(b) Second, the loss due to the insolvency of a partner should be divided among the other partners in the ratio of capitals then standing (i.e., after partners have brought in cash equal to their shares of loss on realisation).
The practical effect of this is that the loss due to the insolvency of a partner has to be borne by the solvent partners in the ratio of their capitals standing just prior to dissolution.
Garner Vs Murray: Loss by Insolvent Partner (Dissolution of Partnership Firm)!
If, at the time of dissolution, a partner owes a sum of money to the firm, he has to pay it to the firm. But if he is insolvent, he will not be able to do so, at least lot fully. The sum which is irrecoverable from an insolvent partner is, therefore, a loss. The question arises whether this loss is an ordinary loss to be shared by the solvent partners in the profit sharing ratio or whether it is an extraordinary loss. Before the decision in Garner vs. Murray was made, such a loss was treated as an ordinary loss.
The judgment in this case was that:
(a) First, the solvent partners should bring in cash equal to their respective shares of the loss on realisation; and
(b) Second, the loss due to the insolvency of a partner should be divided among the other partners in the ratio of capitals then standing (i.e., after partners have brought in cash equal to their shares of loss on realisation).
The practical effect of this is that the loss due to the insolvency of a partner has to be borne by the solvent partners in the ratio of their capitals standing just prior to dissolution.
