Accountancy Part ADissolution of Partnership Firm

According to the section 48 of Partnership Act 1932, in case of disso…

According to the section 48 of Partnership Act 1932, in case of dissolution of a firm, loss including the deficiencies of capital will be recovered first:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Out of profit

Section 48 lays down an order for meeting losses on dissolution: first out of profits, next out of the partners’ capital, and lastly by the partners personally in their profit sharing ratio.

Option (1) Out of capital — Incorrect. Capital is used only after profits are exhausted.

Option (3) Out of revenue — Incorrect. Revenue is not a source named in the section.

Option (4) Out of reserve — Incorrect. Section 48 does not name reserves as the first source.

NCERT (2026-27 edition):
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.”