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mediumMCQCUET Accountancy 2023 20 June Shift 22026Accountancy
1 mark

Identify the scenario from the options below that leads to the complete dissolution of a partnership firm, rather than just a reconstitution of the partnership.

  1. A
    When the underlying business operations of the firm become illegal
  2. B
    When a partner becomes permanently insane
  3. C
    When a partner persistently commits a breach of the partnership agreement
  4. D
    When there is a change in the existing profit-sharing ratio among partners

Solution & Step-by-step Explanation

Let's evaluate how these scenarios affect the firm:\begin{itemize}\item A change in the profit-sharing ratio (\textbf{Option D}) simply results in a \textbf{reconstitution of the partnership}, meaning the firm continues running under a new agreement.\item If the business of the firm becomes illegal (\textbf{Option A}), it results in \textbf{compulsory dissolution of the firm} under Section 41 of the Indian Partnership Act, 1932. Options B and C are grounds where a court \emph{may} order dissolution, but Option A automatically and completely terminates the firm's legal existence.\end{itemize}

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Identify the scenario from the options below that leads to the complete dissolution of a partnership firm, rather than just a reconstitution of the partnership.
A
When the underlying business operations of the firm become illegal
B
When a partner becomes permanently insane
C
When a partner persistently commits a breach of the partnership agreement
D
When there is a change in the existing profit-sharing ratio among partners

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