Question

Identify the correct sequence for application of assets at the time of dissolution of firm:
A. Partner’s Loans or Advances
B. Partner’s Capital
C. Profit among the partners in their profit-sharing ratio
D. Third parties such as creditors and Bank Loans
Choose the correct option:

• A. D, C, B and A
• B. A, B, C and D
• C. D, B, C and A
• D. D, A, B and C

Hint:

During dissolution, prioritize settling external debts before repaying partners to avoid legal issues.

Answer 1

The Correct Option is D

Upon dissolution, assets are distributed sequentially:
1. Third-party claims (D): External creditors are satisfied first.
2. Partner advances (A): Loans from partners to the firm are repaid.
3. Partner capital (B): Original capital contributions by partners are returned.
4. Profit sharing (C): Any residual profits are allocated according to the partnership agreement.