As per Section 48 of the Partnership Act 1932, which of the following will be utilized for payment of losses, including deficiencies of capital:

(A) Out of Profits
(B) Out of capital of Partners
(C) By partners individually in their profit sharing ratio
(D) Creditors Assets

Choose the correct answer from the options given below:

(A), (B) and (C) only

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

Statement (D) Creditors Assets is incorrect. Creditors are third parties to whom the firm owes money. Their assets cannot be utilized to pay the firm's losses. Instead, the firm's assets are utilized to pay the creditors.

"In case of dissolution of a firm, the firm ceases to conduct business and has to settle its accounts. For this purpose, it disposes off all its assets for satisfying all the claims against it. In this context it should be noted that, subject to agreement among the partners, the following rules as provided in Section 48 of the Partnership Act 1932 shall apply.

(a) Treatment of Losses Losses, including deficiencies of capital, shall be paid :

(i) first out of profits,

(ii) next out of capital of partners, and

(iii) lastly, if necessary, by the partners individually in their profit sharing ratio.

(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."