New 55% Off on All Courses - Enroll Now! Click Here

    Question

    The accounting rule in respect of loss arising due to

    insolvency of a Partner is dealt within the case of:
    A Garner v. Murray Correct Answer Incorrect Answer
    B Hyde v.- Wrench Correct Answer Incorrect Answer
    C Carl ill v. Carbolic Smoke Ball Co. Correct Answer Incorrect Answer
    D Derry v. Peek Correct Answer Incorrect Answer

    Solution

    Garner vs. Murray is an English case from 1904. This case came to one of the most revered case in the history of partnership businesses and the decisions given by Mr. Justice Joyee are still used in the present day as a rule to deal with similar situations. It was also adopted into the Indian Partnership Act, 1932. It was held that the solvent partners are only liable to make good their share of deficiency, and that the remaining assets should be divided among them in the proportion of their capitals. Section 48 of Indian Partnership Act 1932 is similar to the Section 44 of the Partnership Act in Great Britain and further there has been no case law in India to deal with such situations. So, in India these are applicability with respect to following considerations: • Garner vs. Murray is applicable only when there is no agreement between the partners for sharing the deficiency in capital account of insolvent partner. • Realisation loss should be divided in the profit sharing ratio in the usual manner. • The solvent partners should bring in cash to make good the loss on realization. • Final debit balance of insolvent partner should be distributed amongst the solvent partners in proportion in their last agreed capital. • A solvent partner having debit balance in capital account will not share any loss due to insolvency of a partner.

    Practice Next