Skip to content

CA Foundation · Business Laws · The Indian Partnership Act, 1932

A firm of Jay, Kiran and Lata is dissolved. After selling assets, Rs 6,00,000 is available. The firm owes Rs 1,50,000 to outside creditors, Rs 1,00,000 as loan from partner Jay, and Rs 3,00,000 as capital contributed by partners. There are no other claims. What happens to the money in the order the Act prescribes?

Outside creditors are paid first (Rs 1,50,000), then Jay's loan (Rs 1,00,000), then partners' capital (Rs 3,00,000). These total Rs 5,50,000, so the remaining Rs 50,000 is the residue divided among partners in their profit-sharing ratio.

  1. APay Jay's loan first, then creditors, then capital, leaving Rs 50,000 as surplus
  2. BPay creditors Rs 1,50,000, then Jay's loan Rs 1,00,000, then capital Rs 3,00,000, leaving Rs 50,000 to be shared as profitCorrect
  3. CPay capital Rs 3,00,000 first, then creditors and Jay's loan, leaving Rs 50,000
  4. DPay creditors and capital together proportionately, then Jay's loan from the balance

Explanation

Losses are met first from profits, then capital, then partners' own pocket. Assets are applied first to outside debts (Rs 1,50,000), then to partners' advances/loans (Rs 1,00,000), then to capital (Rs 3,00,000). Total Rs 5,50,000 leaves Rs 50,000 to be divided in profit-sharing ratio. Option A reverses the first two payments.

Did you get it right without looking?

One question tells you little. A timed set on The Indian Partnership Act, 1932 shows your real accuracy, how long you take and where you lose marks.

Practise The Indian Partnership Act, 1932Free diagnostic mock

More The Indian Partnership Act, 1932 questions