Dissolution of partnership requires closing stock to be valued at market price for true trading results.

On dissolution of a partnership during the accounting year, closing stock must be valued at prevailing market price to ascertain the true trading results of the dissolved firm. The method used for a continuing concern does not apply once the partnership has ceased to exist, because valuation must reflect profits or losses as at closure. A later takeover of the stock by one partner does not change the position for the dissolved firm, and the settlement between partners may evidence market value. The Tribunal's market-value valuation was upheld as correct in law.

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Issues: Whether, on dissolution of a partnership during the accounting year, the closing stock of the business must be valued at market price for determining the trading results of the dissolved firm.

Analysis: The business of a continuing concern may adopt a consistent method of valuing opening and closing stock, but that principle does not extend to a business that has ceased to exist on dissolution. When the partnership comes to an end, the stock-in-trade must be brought to account at its prevailing market value in order to ascertain the true profits or losses of the partnership on the date of closure. The fact that one partner later takes over the stock and continues the business does not alter the position for the dissolved firm, and the valuation settled between the partners is relevant as evidence of market value.

Conclusion: The closing stock had to be valued at market price, and the valuation adopted by the Tribunal was correct in law; the reference was answered against the assessee.

Ratio Decidendi: On dissolution of a partnership during the accounting year, stock-in-trade must be valued at its prevailing market price to determine the true trading results of the dissolved firm.

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