Worked Solution
✓ VerifiedGarner vs Murray Rule (applied in partnership dissolution when a partner is insolvent): The deficiency of the insolvent partner is borne by the remaining solvent partners in their capital ratio (not profit-sharing ratio). Partners R and S have overdrawn capital accounts (shown as assets in the Balance Sheet). Since R is declared insolvent and nothing is recoverable from his estate, R's net deficiency is written off and shared by P and Q (the only solvent partners with positive capital balances on the Balance Sheet) in their capital ratio of ₹1,68,000 : ₹1,08,000 = 14 : 9. S, though solvent, had a negative (overdrawn) capital balance and is therefore excluded from the Garner vs Murray ratio; S must bring in cash to clear her own deficit.
Realisation Account
Dr side — Assets at book value: Land & Building ₹2,46,000; Furniture & Fixtures ₹65,000; Stock ₹1,00,000; Debtors ₹72,500 = ₹4,83,500. Cash payments: Sundry Creditors ₹36,000; Mortgage Loan ₹1,10,000; Further Creditors ₹18,000; Dissolution Expenses ₹7,800 = ₹1,71,800. Total Dr = ₹6,55,300.
Cr side — Liabilities transferred: Sundry Creditors ₹36,000; Mortgage Loan ₹1,10,000 = ₹1,46,000. Proceeds received: Land & Building ₹2,30,000; Furniture ₹42,000; Stock ₹72,000; Debtors ₹65,000 = ₹4,09,000. Loss on Realisation = ₹1,00,300 transferred to partners in 4:3:2:1 — P ₹40,120; Q ₹30,090; R ₹20,060; S ₹10,030.
Partners' Capital Accounts
Reserves (General ₹95,000 + Capital ₹25,000 = ₹1,20,000) credited in 4:3:2:1: P ₹48,000; Q ₹36,000; R ₹24,000; S ₹12,000.
After reserves and loss on realisation: P = ₹1,75,880 (Cr); Q = ₹1,13,910 (Cr); R = ₹21,060 (Dr — deficiency, insolvent); S = ₹16,030 (Dr — deficiency, solvent, must pay cash).
Applying Garner vs Murray: R's deficiency ₹21,060 shared by P and Q in capital ratio 14:9 — P bears ₹12,819; Q bears ₹8,241.
Final settlement: P receives ₹1,63,061; Q receives ₹1,05,669; S pays ₹16,030 to bank.
Cash Account
Total receipts: Opening cash ₹15,500 + Realisation proceeds ₹4,09,000 + Cash from S ₹16,030 = ₹4,40,530. Total payments: Creditors & expenses ₹1,71,800 + P ₹1,63,061 + Q ₹1,05,669 = ₹4,40,530 ✓.
Write it like this
1The skeleton
- Start with a 2-line Garner vs Murray rule statement — examiner gives reading marks here; write 'deficiency of insolvent partner borne by solvent partners having positive capital balances in their last agreed capital ratio' before touching any account.
- Open Realisation Account first, transfer ALL assets at book value on Dr side and ALL liabilities on Cr side — this locks your loss figure (₹1,00,300) which flows into every account after it, so an error here cascades and kills marks downstream.
- Credit reserves before computing post-dissolution capital balances — General Reserve + Capital Reserve go to all four partners in 4:3:2:1 BEFORE you apply Garner vs Murray; skipping this step means your deficiency figure for R will be wrong and the examiner won't award the ratio step.
- Identify who is excluded from Garner vs Murray explicitly — write in your answer that S is excluded because her capital balance is negative (overdrawn) even before dissolution losses; this one line shows conceptual clarity and picks up presentation marks.
- Compute the Garner vs Murray ratio in your working — show 1,68,000 : 1,08,000 = 14:9 clearly as a named step; examiners are trained to tick this ratio; if you just write the split without showing the ratio derivation you risk losing the step mark.
- Cross-cast your Cash Account last — receipts side = payments side (₹4,40,530) is your self-verification; write the totals on both sides and put a tick; it signals exam discipline and the examiner treats a balanced Cash Account as confirmation your entire solution is correct.
2Examiner-rewarded phrases
3Common trap
The classic killer is sharing R's deficiency in 4:3:2:1 (profit ratio) instead of the capital ratio of P and Q only — most students know Garner vs Murray exists but revert to profit ratio under exam pressure and also forget to exclude S just because she's solvent; S had an overdrawn capital, so she pays her own deficit in cash and sits out the Garner vs Murray split entirely.