Partnership

Dissolution

Easy

In case of dissolution of a firm, Losses including deficiencies of capital, shall be paid first out of ....

Capital of partners

Amount provided by partners individually in thier profit sharing ratio.

Profit

Debts

✅ Correct Option: 3

According to Section 48 of the Indian Partnership Act, 1932, losses of the firm (including deficiencies of capital) during dissolution shall be paid in the following order:

First: Out of Profits

Second: Out of Capital

Third: By partners individually in their profit-sharing ratio

The logic behind this sequence is straightforward. Any accumulated profits belong to the firm and should be used to absorb losses before touching the partners' capital. Only when profits are insufficient should the capital be utilized. If both profits and capital fall short, partners must contribute personally in their profit-sharing ratio.

Example: If a firm has accumulated profits of ₹20,000, total capital of ₹50,000, and losses on dissolution amount to ₹15,000, the loss will first be adjusted against the ₹20,000 profit, leaving ₹5,000 profit remaining. The capital remains intact.

However, if the loss were ₹30,000, it would first exhaust the entire ₹20,000 profit, then the remaining ₹10,000 would be adjusted against capital.

This systematic approach ensures equitable treatment and protects partners' capital to the maximum extent possible before requiring additional contributions.

2023: 29 May Shift 2

Which mode of dissolution is highlighted in the above case?

2025: 3 June Shift 2

The dissolution of partnership may take place in any of the following ways except:

2026: 29 May Shift 1

At the suit of a partner, the court may order a partnership firm to be dissolved on any of the following grounds:

(A) When a partner becomes insane.

(B) When a partner becomes permanently incapable of performing his duties as a partner.

(D) When a partner is guilty of misconduct which is likely to adversely affect the business of the firm.

Choose the correct answer from the options given below:

2022: 20 July Shift 1

On the dissolution of the partnership firm the amount realised from sale of assets shall be applied in following order.

(a) Distributing the amount left among the partners in their profit sharing ratio

(b) Paying amount due to partner on account of loan advanced by him

(d) Paying partners' capital account balances

Choose the correct answer from the options given below :

2025: 27 May Shift 1

Unrecorded assets when taken over by a partner are shown on:

2025: 3 June Shift 1

According to section _________ of the Partnership Act, 1932, the dissolution of partnership between all the partners of a firm is called the dissolution of the firm.

In case of dissolution of a firm, Losses including deficiencies of capital, shall be paid first out of ....

Solution

Related questions:

Keyboard Shortcuts

CUET Accountancy Past Year Questions (Topic-Wise)