On disSolutions of a partnership firm, profit or loss on realization is distributed among the partners:
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- In capital ratio
- In profit sharing ratio
- Equally
- None of these
The Correct Option is B
Solution and Explanation
Step 1: Understanding the distribution of profit or loss on realization.
On disSolutions, any profit or loss arising from the realization of assets is distributed among the partners in their agreed profit sharing ratio. This ensures that all partners bear the results of disSolutions equitably as per their contributions and entitlements.
Step 2: Identifying the correct ratio.
The profit sharing ratio is used because it reflects the partners' original agreement regarding the distribution of profits and losses during the partnership.
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A, B, C, and D share profit and loss in the ratio of 4 : 3 : 2 : 1. The partnership was dissolved on 31st March, 2024. The firm’s balance sheet on this date was as follows:
Liabilities Amount (Rs.) Assets Amount (Rs.) Creditors 1,20,000 Cash at Bank 8,000 Bills Payable 20,000 Bills Receivable 40,000 Capital A 80,000 Debtors 1,40,000 Capital C 1,20,000 Stock 92,000 Capital B 40,000 Capital D 20,000 Total 3,40,000 Total 3,40,000
90% of Book value was realised from Debtors and Bills Receivable. Stock could be sold for ₹ 78,000. Outstanding salary of ₹ 2,000, which was not shown in the Balance Sheet, was also paid. The realisation expenses amounted to ₹ 6,000.
B is insolvent and only ₹ 32,000 could be recovered from him. The rule of Garner v/s Murray shall apply.
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