Accountancy Part ADissolution of Partnership Firm

In case of dissolution, application of assets of the firm shall be ap…

In case of dissolution, application of assets of the firm shall be applied in a particular manner and order.
Arrange the following steps in a sequence:

(A) In paying to each partner proportionately what is due to him on account of capital.

(B) The residue, if any, shall be divided among the partners in their profit sharing ratio.

(D) In paying each partner proportionately what is due to him/her from the firm for advances as distinguished from capital i.e. Partner's Loan

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (C), (D), (A), (B)

On dissolution, the assets of the firm are applied in this order:

(C) In paying the debts of the firm to the third parties.
(D) In paying each partner proportionately what is due to him/her from the firm for advances as distinguished from capital i.e. Partner’s Loan
(A) In paying to each partner proportionately what is due to him on account of capital.
(B) The residue, if any, shall be divided among the partners in their profit sharing ratio.

NCERT (2026-27 edition):
Settlement of Accounts – “… (b) Application of Assets The assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order: (i) In paying the debts of the firm to the third parties; (ii) In paying each partner proportionately what is due to him/her from the firm for advances as distinguished from capital (i.e. partner’ loan); (iii) In paying to each partner proportionately what is due to him on account of capital; and (iv) the residue, if any, shall be divided among the partners in their profit sharing ratio.”