What is Garner vs murray rule?
When a partner’s capital account shows a debit balance on dissolution of the firm, he has to pay the debit balance to the firm to settle his account. If the partner becomes insolvent, he is unable to pay back the amount owed by him to the firm in full. The amount not paid is a loss to the firm which under the Garner vs Murray Rule is to be borne by the solvent partners. According to this Rule: The loss on account of insolvency of a partner is a CAPITAL loss which should be borne by the solvent partners in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm.
Often people find Garner vs Murray's Rule to be difficult to implement, but it is not so. Its easy....all u need is to know to handle and keep the rule in mind. ** GARNER VS MURRAY'S RULE ----------------------- ** 1. The solvent partners should bring in cash equivalent to their respective share of loss on realization. 2. The loss due to insolvency of any partner(s) are required to be borne by the solvent partner(s) in their Capital Adequacy Ratio. **Capital Adequacy Ratio:-** It is the ratio of the outstanding balances in the capital accounts of partners after all adjustments. Just remember Garner vs Murray Rule and about Capital Adequacy Ratio and its just a kid work then. For more information on this or any such concepts U can contact.
Dear Debojeet Maumdar In case of dissolution of a firm, the partners shall pay the debit balance if any in their Capital Account. But if such a partner is insolvent and not able to satisfy his debts, the other solvent partners shall borne that deficiency in accordance with the decision in Garner Vs Murray. In this case it was ruled that , in the absence of any agreement to the contrary, the deficiency on the insolvent partners Capital Account must be borne by the other solvent partners in proportion to their capitals which stood before the dissolution of the firm Kind Regards Vinod.P