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 applied in this order:
1. Third-party liabilities (D): External creditors paid first to settle debts.
2. Partner’s loans or advances (A): Loans made by partners to the firm repaid next.
3. Partner’s capital (B): Return of capital invested by partners.
4. Profit distribution (C): Remaining profits distributed as per agreement.