Question

In Garner v. Murray, the deficiency of the insolvent partners is borne by other partners in the _________________.

• A. Profit sharing ratio
• B. Ratio of their capitals
• C. Equal share by each
• D. None of the above

Answer 1

The correct option is B Ratio of their capitals

When a partner’s capital account shows a debit balance on the dissolution of the firm, he has to pay the debit balance to the firm to settle his account. If the partner becomes insolvent, he is not able to pay back the amount owed to the firm by him. The amount not paid is a loss to the firm which under the Garner v/s Murray Rule is to be borne by the solvent partners.

According to Garner v/s Murray Rule:

The loss on account of insolvency of a partner is a capital loss which shall be borne by the solvent partners in the ratio of the balance standing in their capital accounts on the date of dissolution of the firm.