Accountancy Part ADissolution of Partnership Firm

In case of the dissolution of a firm, the firm ceases to conduct busi…

In case of the dissolution of a firm, the firm ceases to conduct business and has to settle its accounts. Losses, including deficiencies of capital, shall be paid in the following manner and order:

(A) Out of capital of partners

(B) By the partners individually in their profit sharing ratio

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

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

Under Section 48 of the Partnership Act, losses on dissolution, including deficiencies of capital, are met in this order:

(C) Profits.

(A) Out of capital of partners.

(B) By the partners individually in their profit sharing ratio.

NCERT (2026-27 edition):
Settlement of Accounts – “… (a) Treatment of Losses Losses, including deficiencies of capital, shall be paid : (i) first out of profits, (ii) next out of capital of partners, and (iii) lastly, if necessary, by the partners individually in their profit sharing ratio.”