Partnership

Dissolution

Easy

common

Arrange the following in correct order in which assets of the firm can be used in the settlement.

(A) Residue shall be divided between the partners in their profit sharing ratio.

(B) In paying the partners proportionately what is due to him/her on account of capital.

(C) In paying the partners proportionately what is due to him/her from the firm for advances/loans.

(D) In paying the debts of the firm to the third parties.

Choose the correct answer from the options given below:

(A), (B), (C), (D)

(A), (C), (B), (D)

(B), (A), (D), (C)

(D), (C), (B), (A)

✅ Correct Option: 4

When assets of a partnership firm are used for settlement during dissolution, a specific order must be followed as per the Indian Partnership Act, 1932 (Section 48).

The realized assets are applied in the following sequence:

First Priority: External liabilities must be cleared

→ (D) In paying the debts of the firm to the third parties

Second Priority: Partner's loans/advances take precedence over capital

→ (C) In paying the partners proportionately what is due to him/her from the firm for advances/loans

Third Priority: Return of capital to partners

→ (B) In paying the partners proportionately what is due to him/her on account of capital

Fourth Priority: Distribution of surplus (if any)

→ (A) Residue shall be divided between the partners in their profit sharing ratio

The logic behind this order is:

Third-party creditors have the highest claim as they are external to the firm
Partner's loans are treated as liabilities (not capital), hence paid before capital
Capital is returned to partners after all liabilities are settled
Only after returning capital, any remaining surplus is distributed as profit

Correct sequence: (D), (C), (B), (A)

This matches Option 4.

2025: 30 May Shift 2

Which combination of statements is true about dissolution-

(A). Dissolution of a partnership is different from dissolution of a firm.

(B). A partnership is dissolved when there is a death of a partner.

(C). A firm is dissolved when all partners give consent to it.

(D). A firm is compulsorily dissolved when a partner decides to retire.

Choose the correct answer from the options given below:

2025: 16 May Shift 1

Realization profit of 55,980 to be distributed amongst partners is:

2025: 15 May Shift 1

Arrange the following in the sequence in which they shall be applied in payment at the time of dissolution of a firm:

(A) The debts of the firm to the third parties.

(B) Partner proportionately what is due to him/her from the firm for advances as distinguished from capital (i.e. partner's loan).

(D) Divided among the partners in their profit sharing ratio.

Choose the correct answer from the options given below:

2026: 21 May Shift 2

At the time of the Dissolution of the Partnership firm, "Creditors were Rs.1,00,000. They accepted buildings valued at Rs.1,20,000 and paid cash to the firm Rs.30,000". Necessary journal entry would be :

2025: 3 June Shift 1

Match List-I with List-II

List–I (Events)	List–II (Result)
(A) Termination of business.	(I) Not possible in dissolution of partnership.
(B) Continuation of Business	(II) Not possible in the dissolution of a firm.
(C) Intervention of court.	(III) Dissolution of firm
(D) Continuation of books of accounts.	(IV) Dissolution of partnership.

Choose the correct answer from the options given below:

2025: 2 June Shift 2

An unrecorded asset is taken over by a creditor in full settlement in such a case

Solution

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