When a partner's capital account shows debit balance , it means that partner is insolvent . In other words he is unable to pay his loan . This is extra loss which must be tolerated by other partners . Why ? Because the whole liabilities of partnership firm is unlimited . Now one question is arised that in which proportion or ratio , the rest partners divide this extra loss or deficiency of firm . Before the decision of Garner V/s Murray case , this extra loss deems as normal loss and it is distributed rest partners in their profit and loss sharing ratio
Decision in Garner V/S Murray Case :-
In this case , the judges decided that in the absence of any anti- agreement , insolvent partner's deficiency will be distribute in capital ratio in rest partners after bringing cash equal to their loss on the realisation .
Result of above decision :-
1) Solvent partner will bring his loss from realisation in cash form.
2) Insolvent partner's capital account's deficiency will distribute in solvent partners in their capital ratio