Tag: dissolution of firm

Voluntary winding up is the process in which a company is unable to carry out it operations or the period for carrying the operations expires or if it is unable to meet its financial obligations. It can carry this process either by passing special resolution or by ordinary resolution. There are two kinds of voluntary winding up. They are;

At the time of dissolution, the accounts of partners are settled. Accounts are settled by paying them the amount of capital due to them. So, if a partner has debit balance in his capital he has to bring the amount to clear off his debit balance. Suppose. there are three partners, A, B and C. Capital of partners at the time of dissolution are A Rs.30000(CR.), B Rs.10000(CR.), and C Rs. 5000(DR.). In this , Partner C will bring Rs. 5000 to clear off his balance due to him.

Dissolution of partnership means termination of old partnership agreement and a reconstruction of the firm due to admission ,retirement and death. Dissolution of partnership firm means that the firm closes down its business  and comes to an end. In this case because of death partnership dissolved. 

The rule to follow in piecemeal distribution is that the partners whose capitals are more than proportionate to other partner's capital should first be refunded so much as to bring down their capitals to proportionate levels. After this, the cash available should be distributed in the profit -sharing ratio. Each partner's position has to be compared with position of other partners. 

When a partner is unable to contribute towards deficiency of his capital account,he/she is said to be insolvent,and the sum not recoverable is treated as capital loss. In the absence of any agreement, such capital loss is to be borne by the solvent partners in accordance with the principle laid down in Garner vs. Murray case, which states that the solvent partners have to bear such loss in the ratio of their capitals on the date of dissolution.

All those assets which can be converted into cash are transferred to realisation account such as Building, Plant and Machinery, Land etc. Because the main object of this account is to find out the profit or loss on realisation of assets and payment of liabilities. 

In India, no compulsory audit is provided by Indian Partnership Act, 1932. As per the Income Tax Act , 1961, Tax audit of Partnership Firm is mandatory if the turnover exceeds One Crore Rupees in case of business and Rupees Twenty Five lakhs in case of Profession.

Section 44 of the Indian Partnership Act states that when a partner becomes of unsound mind,suit for dissolution can be brought by other partner, a friend of that partner and by a relative of that partner. Unsoundness of a partner can be ground for dissolution of firm. 

Dissolution of partnership firm may take place without the intervention of court or by the order of a court, in any of the specified ways. It may be noted that dissolution of the firm necessarily brings in dissolution of partnership. Compulsory Dissolution is one of the way because of which dissolution of firm may take place. A firm is dissolved compulsorily in the following case:

Dissolution of partnership firm may take place without the intervention of court or by the order of a court, in any of the specified ways. It may be noted that dissolution of the firm necessarily brings in dissolution of the partnership.