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Question
In the event of dissolution of a partnership firm, the order of payment of losses, including deficiencies of capital shall be:
Options
(i) First out of profits, (ii) Next by the partners individually in their profit-sharing ratio, (iii) Lastly, if necessary, out of capital of partners.
(i) First out of capital of partners, (ii) Next out of profits, (iii) Lastly, if necessary, by the partners individually in their profit-sharing ratio.
(i) First by the partners individually in their profit-sharing ratio, (ii) Next out of profits, (iii) Lastly, if necessary, out of capital of partners.
(i) First out of profits, (ii) Next out of capital of partners, (iii) Lastly; if necessary, by the partners individually in their profit-sharing ratio.
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Solution
(i) First out of profits, (ii) Next out of capital of partners, (iii) Lastly; if necessary, by the partners individually in their profit-sharing ratio.
Explanation:
Under Section 48(a) of the Indian Partnership Act, 1932, business losses and capital deficiencies must be paid off in a strict order [a]. First, the firm uses its accumulated profits to cover the loss. If the profits run out, the remaining loss is deducted next from the partners’ capital accounts. Finally, if a deficiency still exists, the partners must bring in personal cash individually from their private property in their profit-sharing ratio to settle the final debts.
