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(A), (B), (C), (D)
- B(B), (C), (D), (A)
- C(A), (D), (C), (B)
- D(D), (B), (C), (A)
Solution & Step-by-step Explanation
Section 48(b) of the Indian Partnership Act, 1932 dictates the exact order for applying available assets when liquidating a dissolved firm:First, pay off all external debts of the firm to third parties (A).Next, settle any internal non-capital advances, paying each partner proportionately what is due to him/her for advances/loans (B).Then, repay the equity investments, returning to each partner proportionately what is due to him on account of capital (C).Finally, any leftover surplus is divided among the partners in their profit sharing ratio (D).Thus, the exact legal sequence is (A), (B), (C), (D).