Arrange the following in a sequence in which the amount realized from…

Arrange the following in a sequence in which the amount realized from Assets will be utilized to pay.

A. Partner's Loan
B. Partner's Capital
C. Secured debts of the firm
D. Unsecured debts of the firm
E. Residue to partners

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → C, D, A, B, E

Section 48 of the Partnership Act fixes the order in which the amount realised is applied:

(C) Secured debts of the firm — outside debts are paid first, and secured loans before unsecured ones.
(D) Unsecured debts of the firm — the rest of the outside liabilities.
(A) Partner’s Loan — advances by partners, as distinct from capital.
(B) Partner’s Capital — each partner’s capital is returned next.
(E) Residue to partners — anything left is shared in the profit sharing ratio.

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.”

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.”