Accountancy Part ADissolution of Partnership Firm

State the order of payment to be followed on the dissolution of a fir…

State the order of payment to be followed on the dissolution of a firm:

(A) To each partner proportionately what is due to him/her from the firm for advances provided i.e. Partner's Loan A/c

(B) To each partner proportionately what is due to him/her on account of capital

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

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

(C) For the debts of the firm to outside parties

(A) To each partner proportionately what is due to him/her from the firm for advances provided i.e. Partner's Loan A/c

(B) To each partner proportionately what is due to him/her on account of capital

NCERT (2026-27 edition):
Settlement of Accounts – “… (b) 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.”