Question

In case of dissolution of a partnership firm, the losses, including deficiencies of capital, shall be paid first:

Options

• by partners individually and equally

• by partners individually in their profit-sharing ratio

• out of the capital of the partners

• out of profits

Answer 1

out of profits

Explanation:

According to Section 48 of the Indian Partnership Act, 1932, there is a mandatory legal sequence for settling the losses and capital deficiencies of a firm during dissolution. The losses are settled in a specific hierarchy: they must be paid first out of the firm’s profits, then out of the partners’ capital if profits are exhausted, and finally, if a deficiency still exists, the partners must contribute from their personal assets in their profit-sharing ratio. Therefore, the very first source used to cover any losses is the accumulated or current profits of the business.