Arrange the following steps as provided in section 48 of the Partners…

Arrange the following steps as provided in section 48 of the Partnership Act 1932 in application of amount received from sale of assets.

(A) In paying the secured debts of the firm to the third parties
(B) The residue, shall be divided among the partners in their profit sharing ratio
(C) In paying each partner proportionately what is due to him from the firm for advances
(D) In paying the unsecured debts of the firm to the third parties
(E) In paying to each partner proportionately what is due to him on account of capital

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (A), (D), (C), (E), (B)

(A) In paying the secured debts of the firm to the third parties — first: outside debts come first, and secured loans have precedence over unsecured ones.

(D) In paying the unsecured debts of the firm to the third parties — second: the rest of the outside debts.

(C) In paying each partner proportionately what is due to him from the firm for advances — third: partners’ loans, as distinct from capital.

(E) In paying to each partner proportionately what is due to him on account of capital — fourth: return of capital.

(B) The residue, shall be divided among the partners in their profit sharing ratio — fifth: whatever is left.

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.”