Accountancy Part ADissolution of Partnership Firm

Arrange the following in the sequence in which they shall be applied…

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).

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

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

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

Section 48 of the Partnership Act fixes the order in which the firm’s assets are applied on dissolution:

(A) The debts of the firm to third parties.
(B) Partners’ advances as distinguished from capital (partners’ loans).
(C) What is due to each partner on account of capital.
(D) The residue, divided among the partners in their 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.”