INSOLVENCY OF ALL PARTNERS

Insolvency of all Partners
• When the liabilities of the firm cannot be paid in full out of the firm’s assets as well as personal assets of the partners, then all the partners of the firm are said to be insolvent. Under such circumstances it is better not to transfer the amount of creditors to Realisation Account.

• Creditors may be paid the amount available including the amount contributed by the partners.

• The unsatisfied portion of creditor account is transferred to Capital Accounts of the partners in the profit sharing ratio, then Capital Accounts are closed. In doing so first close the Partners’ Capital Account which is having the worst position. The last account will be automatically closed.