In case of dissolution of firm. Assets shall be applied in the order…

In case of dissolution of firm. Assets shall be applied in the order of.

A. Paying loan from Partners.
B. Paying secured debts of the firm
C. Paying Partners Capital in proportion
D. Paying unsecured debts of the firm
E. The residue shall be divided among the partners 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) → B, D, A, C, E

Section 48 of the Partnership Act fixes the order in which the assets of a dissolved firm are applied. Outside debts come first, and among them secured loans have precedence over unsecured ones:

B. Paying secured debts of the firm — first.

D. Paying unsecured debts of the firm — next; together with B these are the debts to third parties.

A. Paying loan from Partners. — partners’ advances, as distinguished from capital, come after outside debts.

C. Paying Partners Capital in proportion — then what is due to each partner on account of capital.

E. The residue shall be divided among the partners in their Profit sharing ratio. — last.

NCERT (2026-27 edition):
Application of Assets – “… 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: (i) In paying the debts of the firm to the third parties; (ii) In paying each partner proportionately what is due to him/her from the firm for advances as distinguished from capital (i.e. partner’ loan); (iii) In paying to each partner proportionately what is due to him on account of capital; and (iv) the residue, if any, shall be divided among the partners in their profit sharing ratio.”

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.”