Identify the correct sequence to be followed at the time of Dissolution of Partnership firm.

(A) Payment of Partner's Loan Account
(B) Realisation of Assets
(C) Prepare Cash/Bank Account
(D) Prepare Partner's Capital Account
(E) Payment of outsiders liability

Choose the correct answer from the options given below.

(B), (E), (A), (D), (C)

The correct answer is Option (2) - (B), (E), (A), (D), (C).

(B) Realisation of Assets : Realization account is prepared to sell the assets and settling the liabilities. They are used to record the realization of assets and the payment of liabilities, and to ascertain the profit or loss on realization which is distributed between partners in their profit sharing ratio.

(E) Payment of outsiders liability- When the amount comes from realisation assets, that amount is used first to pay outsider liability. The amount realized from assets along with contribution from partners, if required, shall be utilized first to pay off the outside liabilities of the firm such as creditors, loans, bank overdraft, bill payables, etc. (it may be noted that secured loans have precedence over the unsecured loans).

(A) Payment of Partner's Loan Account- After settling all outsider liabilities, partner's loan is settled. It is paid after all outsider liability as this is not outsider liability, it is an liability against partner.

(D) Prepare Partner's Capital Account: Partners capital accounts are prepared to determine the amount due to each partner or any amount payable by them to the firm after the assets are realized and liabilities are paid off.

(C) Prepare Cash/Bank Account : This account is prepared to record the cash and bank transactions during the dissolution process. It is prepared to close the books of account. The debit and credit side of this account comes to same. No balance is left in cash or bank account as all the claims of the firm are settled.