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CMA Intermediate · Financial Accounting · Dissolution of Partnership Firms including Piecemeal Distribution

A firm is being dissolved and its assets are being sold in instalments. Following the order in Section 48 of the Indian Partnership Act, 1932, and subject to any agreement among the partners, what is the correct order of applying the assets?

Third-party debts are paid first, then each partner's advances rateably, then each partner's capital rateably, and any residue is shared in the profit-sharing ratio. This is the order given in Section 48(b) of the Indian Partnership Act, 1932, unless the partners agree otherwise.

  1. APartners' capital, then third-party debts, then partners' advances, then residue
  2. BThird-party debts, then partners' advances (rateably), then partners' capital (rateably), then residue in profit-sharing ratioCorrect
  3. CPartners' advances, then third-party debts, then partners' capital, then residue
  4. DThird-party debts, then partners' capital, then partners' advances, then residue in capital ratio

Explanation

Section 48(b) lays down four steps: debts to third parties, advances (as distinct from capital) paid rateably to partners, capital paid rateably, and finally any residue divided in the profit-sharing ratio. The other options place capital before advances or before outsiders, or use the capital ratio for the residue, none of which matches the section.

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