Question

On dissolution of a firm, out of the proceeds received from the sale of assets ______ will be paid first of all.

Options

• Partner’s Capital

• Partner’s Loan to Firm

• Partner’s additional capital

• Outside Creditors

Answer 1

On dissolution of a firm, out of the proceeds received from the sale of assets, outside creditors will be paid first of all.

Explanation:

On the dissolution of a firm, the proceeds from the sale of assets are first used to pay off the outside creditors (e.g., suppliers, lenders) to settle the firm’s liabilities. After that, any remaining proceeds are used to pay off the partners’ loans to the firm, and finally, the partners’ capital accounts are settled. This follows the order of priority established under the Indian Partnership Act.