Arrange the following in correct order in which assets of the firm ca…

Arrange the following in correct order in which assets of the firm can be used in there settlement.

(A) Residue shall be divided between the partners in their profit sharing ratio.

(B) In paying the partners proportionately what is due to him/her on account of capital.

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

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 4

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

Section 48 of the Partnership Act fixes the order in which the assets of the firm are applied on dissolution: outsiders first, then the partners’ loans, then their capital, and any surplus last.

(D) Debts of the firm to third parties — outside liabilities are paid first.
(C) Partners’ advances and loans — a partner’s loan is repaid before his capital.
(B) Partners’ capital — each partner is then paid what is due on capital account.
(A) Residue — whatever is left is divided in the 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.”