Tag: dissolution of firm

In India, Partnership is one of the most practiced form of organisation. So to control partnership business Indian partnership Act was framed. It came into force on 1st October, 1932. It extends to the whole of India except Jammu and Kashmir. Section 40 to 44 of Indian Partnership Act contains provisions regarding dissolution of partnership firm. 

According to Garner vs. Murray rule, if the partner becomes insolvent, he is unable to pay back the amount due to him. The amount not paid is a capital loss which should be charged from the solvent partner in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm. . 

According to Section 41 of Indian partnership act, 1932, If in a partnership one partner is solvent and rest all partner becomes insolvent then it leads to compulsory dissolution of firm. The court orders in this case to dissolve the firm. 

Option A is correct. After the dissolution of firm, first of all loan given by any partner is paid because loan and advances are liability for the firm. After paying all the liabilities any amount left is divided divided among partners in their profit sharing ratio. If this sequence is not followed debt could not be paid because amount available has already been taken by partner. 

According to Garner vs. Murray rule, if the partner becomes insolvent, he is unable to pay back the amount due to him. The amount not paid is a capital loss which should be borne by the solvent partner in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm. 

When a partner is guilty of misconduct, the other partners can move to the court for dissolution because the misconduct of one partner brings bad name to the firm. When court has just and equitable reason to dissolve then court may order for dissolution. If the firm is suffering from continuous loss, then the court may order for dissolution if there is no capital available for further growth.  

Liquidation is the process in which company stops operating and sell its assets so that cash can be arranged to pay its debts. It is an event that occurs when a company is insolvent and can not pay its obligations when due. The business is no longer in existence once the liquidation process is complete.

No compulsory audit is provided by the Indian Partnership Act, 1932. But as per the Indian Taxation Act, 1961 Tax audit of partnership firm is mandatory if the turnover exceeds Rs. one crore in case of business and Rs. Twenty Five lakhs in case of profession. 

Dissolution of partnership firm means that the firm closes down its business and comes to an end. A realization account is opened for disposing off all the assets of the firm and making payment of all the liabilities. It is a nominal account. The object of such an account is to find out the profit or loss on realization of assets and payment of liabilities. 

Indian Contract Act clearly states that no person less than the age of 18 years can be a party to contract and a partnership is a contract between the partners. Hence a minor together with two major persons can not form a partnership. A minor can only be admitted to the benefits of partnership.