Accountancy Part ADissolution of Partnership Firm

Arrange the following in the context of dissolution of partnership fi…

Arrange the following in the context of dissolution of partnership firm.

A. Payment of loan from Partners
B. Payment of secured outsider's liabilities
C. Realisation of assets into cash
D. Settlement of partner's capital
E. Payment of unsecured outsider's liability

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

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

Section 48 of the Partnership Act lays down the order: assets are turned into cash first, outsiders are paid before partners, and partners’ loans come before their capitals.

(C) Realisation of assets into cash — first. Cash is needed to pay anyone.

(B) Payment of secured outsider's liabilities — second. Secured loans have precedence over unsecured ones.

(E) Payment of unsecured outsider's liability — third. Other outside debts are paid next.

(A) Payment of loan from Partners — fourth. A partner’s loan is repaid before any capital.

(D) Settlement of partner's capital — last. What is left goes to the partners against their capitals.

NCERT (2026-27 edition):
Settlement of Accounts – “… Thus, the amount realised from assets along with contribution from partners, if required, shall be utilised 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); the balance should be applied to repay loans made by the partners to the firm. (in case the balance amount is not adequate enough to pay off such loans and advances, they are to be paid propartionately). The amount left thereafter is utilised in settlement of capital account balances.”