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Chapter 12 : Insolvency
Case 1. Where all Partners, except one are insolvent.
Solve the problem in same way as in Dissolution, and at last transfer the debit balances of insolvent
partners’ capital account to solvent partners’ capital account.
Case 3. Where all Partners, except more than one are insolvent.
Solve the problem in same way as in Dissolution, and at last the debit balance of the insolvent partner
will have to be borne by solvent partners. Now the question arises that in what ratio it should be
borne? We have two options.
Option 1 is plain & simple. The debit balance of the insolvent partner will have to be borne by solvent
partners in their Profit Sharing Ratio. You should go for this option, only if the problem asks to do
that, other wise go for option 2.
Option 2 : Apply the rule of Garner v/s Murray. For this you need to remember two things.
1. The Solvent Partners (whether having Dr or Cr capital balance) will have to bring in cash an
amount equivalent to their respective share of loss on realization, and
2. The Solvent Partners (having Cr capital balance) will have to bear the debit balance of
insolvent partner in Last Agreed Capital Ratio. For this purpose, Last Agreed Capital would
mean:
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