Question

At the time of dissolution of the partnership firm, the firm’s assets are applied first in payment of ______.

Options

• Partner’s debt to outside parties.

• Partner’s Advance.

• Partner’s Capital.

• Firm’s debt due to outside parties.

Answer 1

At the time of dissolution of the partnership firm, the firm’s assets are applied first in payment of firm’s debt due to outside parties.

Explanation:

According to Section 48 of the Indian Partnership Act, 1932, the assets of a partnership firm during dissolution must be utilised following a strict chronological order of legal priority. The very first step requires clearing all liabilities and debts owed by the firm to external third parties, such as sundry creditors, bank loans, and bills payable. Only after these outside claims are fully paid off can any remaining funds be used to repay partners’ advances or loans, followed by the return of their capital contributions, with any final surplus distributed in their profit-sharing ratio.