Question

2 Carrie, Dicky and Eunice formed a partnership 3 years ago to run a Coca-Cola accessories shop from premises already owned by Carrie in Mongkok. At the time Carrie invested HK$100,000 into the business while Dicky invested HK$60,000 and Eunice invested HK$40,000. The partnership agreement stated that the business premises were to remain Carrie’s property and that the partnership was to pay the rent of HK$2,500 per month for the use of premises. Another clause in the partnership agreement stated that all profits and losses should be divided in proportion to the capital contribution. After some time Dicky provided the partnership with a loan of HK$20,000 in order to finance more stock and this loan of HK$20,000 is to be paid back from the future profits of the business. Unluckily, the business was not successful and made a loss. The partners concluded that it would be the best option to stop trading and to dissolve the partnership rather than to take risk resulting more losses.

At the time of the dissolution of the partnership, its assets were worth HK$150,000 and its external debts were HK$70,000. In addition, the partnership owed Carrie HK$10,000 in unpaid rent for the premises which were themselves valued at HK$1,000,000.

Required:

i) State briefly the grounds upon which a partnership can be terminated without any order from the court.   

ii) Advise the partners as to how the financial aspects of the dissolution will be conducted and how the assets will be distributed.

Answer 1

Carrie, Dicky and Eunice formed a partnership 3 years ago to run a Coca-Cola accessories shop from premises already owned by Carrie in Mongkok.

Answer 1

Ground upon which a partnership can be terminated without any order from court-:

• If partnership entered into for fixed amount of time.
• If partnership entered into for single venture, with the end of that venture partnership can be terminated.
• By any partner expressing his unwillingness to other partners for carrying operations of partnership further or expressing his intention to dissolve the partnership.

Answer 2

Financial aspects of dissolution of partnership firm. In case of dissolution of partnership firm, firm ceases to exist. Dissolution process consists of liquidation of assets and settlement of accounts, liabilities and assets.

1. secured creditors are paid first.
2. Unsecured creditors are paid second.
3. Partner’s spouse loans are paid third.
4. partner's loans are paid fourth.
5. partner's capitals are paid fifth.

In our case external dept of hk$70000 is our first priority after paying off external debt, debt of HK$10000 due to outstanding rent and HK$ 20000 of Carrie and dickey respectively will be paid.(shop premises belongs to Carrie solely as per agreement, it was not converted in partnership asset. ) after paying of these debts remaining realizable value of assets will be distributed among the partners for their capital contribution as per partnership agreement or method followed by partners for assets distribution.