Pursuant to Section 48 of the Indian Partnership Act, 1932, when a firm undergoes dissolution, cash assets realized from the disposal of firm assets are applied sequentially in the following order:(A) Paying to each partner proportionately what is due to him/her on account of capital(B) In paying the secured debts of the firm to the third parties(C) In paying each partner proportionately what is due to him/her from the firm for advances as distinguished from capital(D) The residue, if any shall be divided among the partners in their profit sharing ratio(E) In paying unsecured debts of the firm to third parties Choose the correct answer from the options given below:
- A(C), (B), (D), (A), (E)
- B(B), (E), (C), (A), (D)
- C(A), (B), (C), (D), (E)
- D(D), (C), (B), (A), (E)
Solution & Step-by-step Explanation
Section 48 of the Indian Partnership Act, 1932 regulates account settlement during dissolution. Available cash resources are allocated in this priority sequence:First, payment of external debts due to third parties (both secured and unsecured) (B) then (E).Second, settling rateable returns on advances/loans made by individual partners outside capital stakes (C).Third, settling what is due to partners rateably on account of capital balances (A).Lastly, distribution of leftover surplus/residue among partners according to their profit-sharing allocations (D).Thus, the exact order is (B), (E), (C), (A), (D).