The assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, shall be applied first for paying:
- AEach partner proportionately for any advances made to firm.
- BDebts of the firm to the third parties
- CPaying partners proportionately for their capital balances.
- DPartners in their profit sharing ratio.
Solution & Step-by-step Explanation
According to Section 48 of the Indian Partnership Act, 1932, during the settlement of accounts upon the dissolution of a firm, the assets of the firm (including sums contributed by partners to meet capital deficiencies) must be applied in the following sequence:First: In paying the debts of the firm to third parties.Second: In paying to each partner rateably what is due to him from the firm for advances/loans as distinguished from capital.Third: In paying to each partner rateably what is due to him on account of capital.Fourth: The residue, if any, is divided among the partners in their profit-sharing ratio.Hence, assets are applied first for paying debts of the firm to third parties.