In case of dissolution of a firm, the firm ceases to conduct business and has to settle its accounts. 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:(A) In paying to each partner proportionately what is due to him on account of capital.(B) The residue, if any, shall be divided among the partners in their profit sharing ratio.(C) In paying the debts of the firm to third parties.(D) In paying each partner proportionately what is due to him/her from the firm for advances as distinguished from capital (i.e. partner loan).Choose the correct answer from the options given below:
- A(B), (A), (C), (D)
- B(C), (D), (A), (B)
- C(B), (A), (D), (C)
- D(C), (B), (D), (A)
Solution & Step-by-step Explanation
According to Section 48 of the Indian Partnership Act, 1932, during the settlement of accounts upon dissolution, assets are applied in the following absolute order of priority:First (C): In paying off the external debts of the firm to third parties.Second (D): In paying each partner proportionately what is due on account of advances or loans given by them beyond capital.Third (A): In returning the capital balances due to each partner proportionately.Fourth (B): Any leftover surplus (residue) is distributed among partners in their profit-sharing ratio.This sequence is exactly: (C), (D), (A), (B).