According to Indian Partnership Act, 1932, when the firm is dissolved, cash received on sale of assets are applied in following order:
(A) Paying to each partner proportionately what is due to him/her on account of capital
(B) In paying the secured debts of the firm to the third parties
(C) In paying each partner proportionately what is due to him/her from the firm for advances as distinguished from capital
(D) The residue, if any shall be divided among the partner's in their profit sharing ratio
(E) In paying unsecured debt of firm to third parties
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (B), (E), (C), (A), (D)
Section 48 of the Act settles outsiders before partners, and partners’ loans before their capital:
(B) In paying the secured debts of the firm to the third parties — secured loans have precedence over unsecured ones.
(E) In paying unsecured debt of firm to third parties — the rest of the outside debts.
(C) In paying each partner proportionately what is due for advances as distinguished from capital — partners’ loans.
(A) Paying to each partner proportionately what is due on account of capital — return of capital.
(D) The residue, if any, divided among the partners in their profit sharing ratio — whatever is left.
NCERT (2026-27 edition):
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