Question

When capitals are fixed, the loss arising out of insolvency of a partner will be borne by other solvent partners in the ____________________.

• A. Ratio of their fixed capital
• B. Ratio of fixed capital plus current accounts
• C. Profit sharing ratio
• D. Ratio of their capital after making necessary adjustments

Answer 1

The correct option is A Ratio of their fixed capital

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.