Arrange the following in the sequence in which they shall be applied in payment at the time of dissolution of a firm:

(A) The debts of the firm to the third parties.

(B) Partner proportionately what is due to him/her from the firm for advances as distinguished from capital (i.e. partner's loan).

(C) Each partner proportionately what is due to him on account of capital.

(D) Divided among the partners in their profit sharing ratio.

Choose the correct answer from the options given below:

(A), (B), (C), (D)

The correct answer is option 1- (A), (B), (C), (D).

(A) The debts of the firm to the third parties.

(B) Partner proportionately what is due to him/her from the firm for advances as distinguished from capital (i.e. partner's loan).

(C) Each partner proportionately what is due to him on account of capital.

(D) Divided among the partners in their profit sharing ratio.

Upon dissolution of a firm, the firm's assets shall be applied in the following order:
* Pay off all debts owed to third parties.
* Repay each partner's loan to the firm, in proportion to the amount loaned.
* Return each partner's capital contribution, in proportion to the amount contributed.
* Any remaining assets (surplus) shall be distributed among the partners in their profit-sharing ratio.

So, The amount realized from assets along with contribution from partners, if required, shall be utilized 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. (in case the balance amount is not adequate enough to pay off such loans and advances, they are to be paid proportionately). The amount left thereafter is utilized in settlement of capital account balances. Then the surplus if any is divided among partners in their profit sharing ratio.