BBA 1st Semester Business Low Notes

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Business Low Settlement of Accounts Notes

Business Low Notes :-

Usually the Partnership Deed contains an “accounting clause” according to which the final accounts between the partners are settled. But in the absence of any agreement between the partners the rules stated in Sec. 48 of the Act apply. Accordingly the mode of settlement of accounts between the partners after dissolution is as follows :

  1. Where the firm has suffered losses, or where capital has dwindled, in either case, the undistributed profits, if any, are first of all to be applied to the payment of such losses or to the making up the deficiency of capital. If the profits prove insufficient, the capital must be applied for the payment of the losses. If even then there Is loss,’ partners must contribute individually in proportion to the profit sharing
  2. The assets of the firm including any sums contributed by the partners to make up deficiencies of capital, must be applied in the following manner and order :
  • in paying the debts due to third parties;
  • in paying to each partner rateably what is due to’him from the firm for advances as distinguished from capital contributed by them;
  • in paying to each partner rateably what is due to him on account of capital; and
  • the residue, if any, must be divided among the partners in the proportion in which they were entitled to share
  1. If a partner becomes insolvent or otherwise cannot pay his share of the contribution, the capital of the solvent partners cannot be returned in full. In this case, the solvent partners must share rateably the available assets (including their own contribution to the capital deficiency), i.e., the available assets will be distributed in proportion to the original Example :

A, Band C are three partners in a firm who have agreed to share profits and losses equally. Their capital contributions are: A- Rs. 10,000 ; B- Rs.5,000 ; C -Rs. 1,000, making a total capital of Rs. 16,000.

On dissolution it is found that reliable assets are Rs.20,000 and debts payable are Rs.13,000 with the result that the available assets are Rs.7 ,000. Therefore, capital deficiency is Rs.9,000. According to Rule 1 stated above, each partner must contribute Rs.3,000 capital deficiency, because they share profits equally.

The final position will be that A is to pay Rs.3,000 and receive Rs. 10,000: B is to pay Rs.3;000 and receive Rs.5,000; C is to pay Rs.3,000 and receive Rs. 1,000.

Consequently, C contributes Rs.2,000. This contribution together with the available assets of Rs.7,000 amounts to Rs.9,000. Out of this amount A gets Rs.7,000 and B gets Rs.2,000.

If C is insolvent (Rule 3); he will pay nothing. The available assets will be Rs.7,000 plus Rs.6,000 (the contribution of A and B), i.e., in all Rs.13,000. This amount will be divided between A and B in the ratio of 2 : 1 which is the ratio between their capital. A will get Rs.8,666.67 p. and B will get Rs.4,333.33 P.

Payment of debts of the firm and private debts

Where there are joint debts due by the firm, and separate debts due from any partner, the partnership creditors should be paid first out of the partnership assets, and similarly private creditors should be paid first out of the private assets of the partner. In both cases, if there be surplus, tlu other set of creditors will be entitled to share in it.

A and B are partners and become insolvent. A’s private debts are Rs. 10,000 and B’s Rs 15,000. The partnership debts are Rs.50,000, and the assets Rs. 60,000. The partnership creditors will be paid in full, and the S.urplus of Rs.10,000 will be divided among the private creditors    of A and B in proportion of their rights in the partnership property.


Business Low Notes

  • A and B were partners under an agreement which provided that the partnership should be terminated by mutual agreement Can A terminate the partnership by giving notice to B ?
  • A, an Indian, and B, a Chinese subject, are partners in trade. War breaks out between India and What is the position of the partnership ?
  • A and B were partners, and A was convicted of traveling on the railway without ticket and with intent to Will the Court order dissolution of the firm ?
  • A and B carried on business as partners. After some time the relations between them became so strained that neither would speak to the other. Communications having to be conveyed between them through the accounts The firm had made and continue to make large profits. Can the court order its dissolution ?
  • A and B carried on business in On B’s death the partnership was dissolved but A carried on the business for a further period of one year. How should the profits earned since B’s death be divided ?
  • B, C and J carried on a business as J & Co. J retired and Band C carried on business under a new name with the addition of “Late J & Co”. J found a new firm carrying on the same kind of business in premises adjoining the old firm’s premises in the name of J & Co. and sent circulars about his business to the customers of the old firm. What are J’s rights and those of Band C ?

Answers :

  • Mo, A cannot terminate the partnership by giving notice. He must get B’s consent to do so. .
  • The partnership becomes unlawful and is
  • Yes, the court would order dissolution of the firm. The conviction was for dishonest and calculated to be deterimental to the partnership business,
  • Yes, the court would order dissolution of the firm on just and equitable ground, deadlock between the partners had
  • B’s estate is entitled to share in such part of the profits as were earned by the use of the partnership assets, proportionate to his share in the total partnership
  • J could carry on his new business in competition with the old firm and in the immediate vicinity, but without soliciting the customers of the old firm. The old firm could restrain him from convassing their customers. Further, although his name was J, he could not carry on his new business in the name of J & Co., as the old firm had retained J & , as part of its name.

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