X, Y and Z are partners in a business sharing profits and losses equally. X dies and the firm is dissolved. On the date of dissolution, the capitals of X, Y and Z were Rs. 20,000, Rs. 15,000 and Rs. 10,000 respectively and the outside liabilities amounted to Rs. 65,000. The assets of the firm realised Rs. 15,000. The private estate and debts of each partners were as follows:Private estate Rs. 1,00,000 Rs. 2,00,000, Rs. 3,00,000 Private debt Rs. 1,10,000, Y Rs. 1,90,000, Z Rs. 3,10,000 The outside creditors claim that the deficiency of Rs. 50,000 (i.e., Rs. 65,000 -Rs. 15,000) should be contributed by the partners out of their private estate which amounted to 6,00,000 because the partners are jointly and severally liable to
pay firms debts. Discuss the validity of their claim.

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Solution

Solution: Section to which the problem relates: Section 49.
Decision: The creditors can only ask Y to contribute? 10,000.Decision:
Reason: Partners private assets can be used for payment of firms debts only after his private debts have been paid off.Rs. 10,000.

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Similar questions

Q. X, Y and Z are partners in a business sharing profits and losses equally. Z dies and the firm is dissolved. On the date of dissolution, the capital of X, Y and Z were Rs. 20,000, 15,000 and Rs. 10,000 respectively and the outside liabilities amounted to Rs. 65,000. The total assets of the firm realised Rs. 50,000. What is the amount of deficiency and how the partners shall share such deficiency if the partnership agreement is silent?

Q. X, Y and Z are partners in a business sharing profits and losses equally. Z dies and the firm is dissolved. On the date of dissolution, the capitals of X, Y and Z were Rs. 20,000, Rs. 15,000 and 10,00 respectively and the outside liabilities amounted to Rs. 65,000. X had advanced Rs. 10,000 as loan to the firm. State how the amount realised shall be used if the assets realised (a) Rs. 1,35,000 (b)Rs. 1,05,000?

Q. A, B and C are partners sharing profits in equal ratio. Capital balances on 1st July, 2014 are A - Rs. 20,000, B - Rs. 10,000 and C - Rs. 10,000. Their private properties are : A - 15,000, B - Rs. 7,000 and C - 1,500. What is the extent of their liability in the firm ?

PRACTICAL PROBLEMS

(When all partners become insolvent)

Shiv, Sadashiv and Sadanand are Partners in a firm sharing Profit and Losses equally whose Balance-sheet as on 31^st December, 2011 stood as follows:

Balance Sheet as on 31^st December, 2011
Liabilities	Amount Rs	Assets	Amount Rs
Capital Accounts		Sadanand’s Capital A/c	2,000
Shiv	6,000	Buildings	18,300
Sadashiv	4,000	Machinery	12,700
Parvati’s Loan	10,000	Debtors	9,100
Sundry Creditors	30,000	Bank	7,900
	50,000		50,000

Shiv, Sadashiv and Sadanand were declared bankrupt and hence the firm was dissolved as on that date:

(i) The sundry Assets realised as follows:

Building Rs 10,900, Machinery Rs 8,200, Debtors Rs 6,800.

(ii) Realisation expenses amounted to Rs 1,300.

(iii) Sadanand was unable to contribute anything-

Whereas Rs 1,100 and Rs 900 were recovered from the realisation of private estate of Shiv and Sadashiv respectively.

You are required to close the books of the firm.

A and B were partners in a business sharing profits and losses in the ratio of 3 : 1, They decided to dissolve the partnership on March 31, 2015. On that date, their Capitals stood at Rs 1,00,000 and Rs 50,000 respectively. Amount owing by A to the firm was Rs 42,000 and the amount owed by the firm to B was Rs 15,000; Creditors were Rs 25,000 and Cash Rs 5,000. The assets other than the amount owing by A to the firm realised Rs 64,000. The expenses of realisation amounted to Rs 1,000.

Prepare the Memorandum Balance Sheet of the firm immediately prior to dissolution and necessary ledger accounts to close the books of the firm.

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Solution: Section to which the problem relates: Section 49.Decision: The creditors can only ask Y to contribute? 10,000.Decision: Reason: Partners private assets can be used for payment of firms debts only after his private debts have been paid off.Rs. 10,000.

Solution: Section to which the problem relates: Section 49.
Decision: The creditors can only ask Y to contribute? 10,000.Decision:
Reason: Partners private assets can be used for payment of firms debts only after his private debts have been paid off.Rs. 10,000.