Question

8)a firm is unable to pay the debts when.........
a) a partner is insolvent
b)a partner has debit balance in his capital
c)the firm is insolvent
d)when all expect one partner are insolvent

Answer 1

Answer:

C. The firm is insolvent

Answer 2

Answer:

Option c - when the firm is insolvent then it is unable to pay the debts.

Explanation:

• Firm insolvency refers to a situation in which a company is unable to pay its expenses.
• It can lead to insolvency procedures, in which the insolvent company faces legal action and assets are liquidated to pay off outstanding debts.
• The Companies Act of 1956, Section 433(e), allows the court to order the winding up of a business if it is unable to pay its debts.
• 'Unable to pay its debts' must be understood in the business sense of being unable to meet present demands notwithstanding the fact that the company is otherwise solvent.

Hence, a firm is not able to clear its debts when it is insolvent.

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