The correct answer is: B. in the ratio of their capital.
A partner’s capital is the amount of money or property that they have invested in the partnership. If a partner becomes insolvent, the other partners are liable to pay the debts of the insolvent partner up to the amount of their capital. This is because the partners are jointly and severally liable for the debts of the partnership.
The ratio of the partners’ capital is determined by the partnership agreement. If there is no partnership agreement, the ratio of the partners’ capital is determined by the contributions that they have made to the partnership.
For example, if there are two partners, A and B, and A has contributed $100,000 to the partnership and B has contributed $50,000, then the ratio of their capital is 2:1. If A becomes insolvent, B is liable to pay $50,000 of A’s debts.
The following are the explanations of each option:
- Option A: Equally. This is not correct because the partners are not liable for the debts of the partnership equally. They are liable up to the amount of their capital.
- Option B: In the ratio of their capital. This is the correct answer because the ratio of the partners’ capital is determined by the partnership agreement or, if there is no partnership agreement, by the contributions that they have made to the partnership.
- Option C: In profit sharing ratio. This is not correct because the profit sharing ratio is not relevant to the liability of the partners for the debts of the partnership.
- Option D: None of the above. This is not correct because Option B is the correct answer.