Correct Option: A. borne by all the partners Detailed Explanation: In the context of partnership dissolution, the treatment of a partner's capital account, especially when it has a debit balance (indicating that the partner owes money to the partnership), is crucial. The case of Garner v. Murray is a landmark case that provides guidance on how to handle such situations, particularly when a partner is insolvent.

1. Understanding Capital Accounts:
2. Each partner in a partnership has a capital account that reflects their investment in the business. A debit balance in a partner's capital account means that the partner has withdrawn more than their share of the capital or has incurred losses that exceed their investment.
3. Insolvency of a Partner:
4. When a partner is declared insolvent, it means they cannot meet their financial obligations, including any debts owed to the partnership. In this case, the partner with the debit balance cannot repay the amount owed to the partnership.
5. Garner v. Murray Case:
6. The ruling in Garner v. Murray established that when a partner is insolvent and has a deficiency (a negative balance in their capital account), the loss does not solely fall on that partner. Instead, the deficiency is to be shared among all partners, including the solvent ones. This is because the partnership is a collective entity, and the losses incurred by one partner affect the entire partnership.
7. Implications of the Ruling:
8. The ruling emphasizes the principle of mutual agency in partnerships, where each partner is responsible for the debts and obligations of the partnership. Therefore, if one partner cannot fulfill their financial obligations due to insolvency, the remaining partners must absorb the loss proportionately.

Why Other Options Are Incorrect:

• Option B: borne by the insolvent partner:
• This option is incorrect because the insolvent partner cannot bear the deficiency due to their inability to pay. The essence of the ruling is that the loss must be distributed among all partners, not just the one who is insolvent.
• Option C: written off:
• While it might seem logical to write off the deficiency, this option does not align with the principles established in Garner v. Murray. Writing off the deficiency would imply that the partnership does not recognize the loss, which is not the case. The loss must be accounted for and shared.
• Option D: borne by the solvent partners:
• This option is partially correct but misleading. While it is true that the solvent partners will bear the loss, the phrasing suggests that only they are responsible. The correct interpretation, as per the ruling, is that the loss is shared among all partners, including the solvent ones, rather than solely placed on them.

Summary of Key Points:

• In partnership dissolution, a partner with a debit balance who is insolvent cannot cover their deficiency.
• According to Garner v. Murray, the deficiency must be borne by all partners, not just the insolvent one.
• The principle of mutual agency means that all partners share the financial responsibilities of the partnership.
• Writing off the deficiency or placing the burden solely on the insolvent partner is not in line with established legal principles.

This understanding is crucial for anyone studying financial accounting, particularly in the context of partnerships and their dissolution.