Choose the correct order in which the assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, shall be applied in the dissolution of the firm.
(A) In paying to each partner the residue in profit sharing ratio.
(B) In paying to each partner proportionately what is due to him on account of capital; and
(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);
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (C), (D), (B), (A)
The order follows who has the stronger claim on the firm’s money. Outsiders come before partners, and among the partners a loan comes before capital.
(C) comes first because third parties (creditors, banks, bills payable) dealt with the firm as outsiders; they must be paid in full before the partners take anything.
(D) comes next because a partner’s loan is an advance over and above his capital; it is a debt of the firm, though owed to an insider, so it ranks after outside debts but before capital.
(B) follows because capital is the owners’ own investment, returned only after every debt, including partners’ loans, is cleared.
(A) is last because the residue is whatever is left after all claims; it is shared in the profit sharing ratio, not in the capital ratio.
NCERT (2026-27 edition): |