Accountancy Part ADissolution of Partnership Firm

Which of the following will be paid first from amount realised from s…

Which of the following will be paid first from amount realised from sale of Assets at the time of Dissolution of firm?

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Payment of Outsider’s Liabilities

On dissolution the amount realised from assets is applied in a fixed order: first the debts of the firm to third parties, then partners’ loans, then partners’ capitals, and the residue among partners in their profit sharing ratio.

Option (1) Payment for partner’s loan — Incorrect. Partners’ loans are paid only after the outside liabilities.

Option (2) Payment for partners Capital — Incorrect. Capital is repaid after outside liabilities and partners’ loans.

Option (4) Amount distributed amongst partner’s in their profit ratio — Incorrect. Only the residue left at the very end is divided in the 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.”