In case of dissolution of a firm, 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:

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.

C. 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.

D. In paying the debts of the firm to the third parties.

Choose the correct sequence from the options given below:

D, C, A, B

Correct answer: Option (1) → D, C, A, B

Concept: Section 48 of the Indian Partnership Act, 1932 lays down the order for applying the firm’s assets on dissolution – per Dissolution of Partnership Firm.

Order of payment: (D) first pay the firm’s debts to third parties (outsiders); (C) then pay each partner proportionately what is due for advances/loans (as distinguished from capital); (A) then pay each partner proportionately what is due on account of capital; (B) finally divide the residue among partners in their profit-sharing ratio. Hence D, C, A, B.