Identify the item that is to be paid first out of the amount realised…

The correct answer is Option (3) → Loans

Under Section 48 of the Partnership Act, money realised from assets (with partners' contributions) is applied first to the debts of the firm to third parties – creditors, loans, bank overdraft, bills payable – then to partners' loans, then to partners' capitals.

Option (1) Partner's loans — Incorrect. They rank second, after outside debts.

Option (2) Partners capital — Incorrect. Capital is repaid only after all loans.

Option (4) Partners private debts — Incorrect. A partner's private debts are paid out of his private estate, not first out of firm's assets.