Distinguish between firm’s debts and partner’s private debts.
|Basis of Difference||Firm’s Debts||Partner’s Private Debts|
|Meaning||It refers to those debts that are borrowed against the name of the firm.||It refers to those debts that are borrowed personally by the partner.|
|Liability||All the partners of the firm are jointly and separately liable for the firm's debt||The concerned partner is personally liable for his private debts.|
|Settlement of debts by private assets||If the firm's debt exceeds the firm’s assets, then private assets of the partners may be utilised to pay back the firm's debt, if only the partner's private assets exceeds his/her own private debts.||Private debts are settled against the partner's private assets. Subsequently, if any surplus exists then this may be utilised to settle the firm's debts.|
|Settlement of debts by firm's assets||Firm's debts are settled against the firm’s assets. Subsequently, if any surplus exists, then this is distributed among the partners.||After paying off firm's debts, the surplus of firm's assets, if any is distributed among the partners. The personal share of the partner in this surplus can be utilised to settle his/her own private debts.|
Concept: Dissolution of Partnership Firm
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