Accountancy Part ADissolution of Partnership Firm

The assets of the firm, including any sum contributed by the partners…

The assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, shall be utilized in which sequence? Arrange the following in proper sequence.

(A) In paying the debts of the firm to the third parties

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

(D) The residue, if any, shall be divided among the partners in their profit sharing ratio

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → (A), (B), (C), (D)

Under Section 48 of the Partnership Act, the money of the firm on dissolution is paid out in this order:

(A) In paying the debts of the firm to the third parties.

(B) In paying each partner proportionately what is due to him/her for advances as distinguished from capital (partner’s loan).

(C) In paying to each partner proportionately what is due to him on account of capital.

(D) The residue, if any, divided among the partners in their profit sharing ratio.

NCERT (2026-27 edition):
Settlement of Accounts – “… (b) 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.”