In case of dissolution of a partnership firm, losses, including deficiencies of capital, shall be paid first out of ...............
In case of dissolution of a partnership firm, losses, including deficiencies of capital, shall be paid first out of ...............
Solution
According to Section 48 of the Indian Partnership Act, 1932, when settling accounts during dissolution of a partnership firm, losses including deficiencies of capital are paid in a specific order:
First - Out of Profits (if any available)
Second - Out of Capital of partners
Third - By partners individually in their profit-sharing ratio (from personal assets)
The question specifically asks about the first source for payment of losses. Therefore, losses are first paid out of Profits.
The logic is straightforward: any accumulated or current year profits of the firm are utilized first to absorb the losses. Only when profits are insufficient or non-existent, the firm moves to the next source, which is the capital accounts of partners. If even the capital is inadequate to cover all losses, partners must then bring in additional funds from their personal assets in their profit-sharing ratio.
This sequential order ensures that the firm's internal resources (profits and capital) are exhausted before partners are called upon to make personal contributions beyond their capital.
The correct option is Option 2: Profits.
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