Accountancy Part ADissolution of Partnership Firm

The order of payment/receipt of cash on dissolution of partnership fi…

The order of payment/receipt of cash on dissolution of partnership firm is :

(A) Paying each partner his due on account of capital
(B) Paying debt of firm to third parties.
(C) Paying each partner what is due to him as advance
(D) Paying the partner the residue in profit sharing ratio

Choose the correct answer from the options given below :

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (B), (C), (A), (D)

Section 48 of the Partnership Act, 1932 fixes the order in which the firm’s assets are applied on dissolution: outsiders first, then partners as lenders, then partners as owners.

(B) Paying debts of the firm to third parties is first.

(C) Paying each partner what is due to him as advance (partner’s loan) is second.

(A) Paying each partner his due on account of capital is third.

(D) Paying the residue in the profit sharing ratio is last.

NCERT (2026-27 edition):
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.”