Arrange the following in correct sequence for application of assets in the Settlement of Accounts in Case Of Dissolution of a Partnership firm -

(A) The balance should be applied to repay loans made by the partners to the firm.
(B) The assets of the firm should be used in paying the debts of the firm to third parties.
(C) The balance assets may be used for paying partners proportionately on account of capital.
(D) The asset's residue, if any, shall be divided among the partners in their profit sharing ratio.

Choose the correct answer from the options given below:

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

The correct answer is Option (3) → (B), (A), (C), (D)

• (B) The assets of the firm should be used in paying the debts of the firm to third parties. → First priority is to settle outside liabilities such as creditors and loans from outsiders.

• (A) The balance should be applied to repay loans made by the partners to the firm. → Next, the firm repays any loans or advances given by partners (distinct from capital).

• (C) The balance assets may be used for paying partners proportionately on account of capital. → After external debts and partner loans are cleared, partners’ capital accounts are settled.

• (D) The asset's residue, if any, shall be divided among the partners in their profit-sharing ratio. → Any remaining surplus is distributed as per the profit-sharing ratio.