How deficiency of creditors is paid off?

Explanation

Deficiency of creditors arises once a firm is unable to pay off the creditors when mercantilism of all the assets and utilizing partner’s personal assets. In such a scenario there ar 2 procedures that has to be followed:



1. Transferring deficiency to Partners’ Capital Account:
In this procedure creditors get paid from the money on the market with the firm that features every partner’s individual contribution. The deficiency is transferred to Partners capital account and thus is managed by all partners as per their part quantitative relation. just in case a partner becomes insolvent, it's considered financial loss for the firm. If the partnership deed has no clause for such a scenario, then the financial loss has to be borne by partners WHO ar in solvent state and as per their capital quantitative relation within the firm, as per Garner vs. Murray case.



2. Transferring the deficiency to Deficiency Account:
In this method, a separate account is ready for creditors. Then for determinant the money obtained from sale of companies and partners personal assets, a brokerage account is ready. Then when determinant the money on the market with the firm, creditors and external liabilities ar paid, however not fully. The remaining creditors or the deficiency is then transferred to the deficiency account.