CA Foundation · Accounting · Partnership and LLP Accounts
On dissolution of a partnership firm, which of the following is paid first out of the amounts realised from assets?
Outside liabilities to third parties are paid first on dissolution. Only after they are cleared are partners' loans repaid, then partners' capital, and any surplus goes to partners in the profit-sharing ratio. Outsiders rank ahead of all partner claims.
- ALoans advanced by partners to the firm
- BPartners' capital contributions
- COutside liabilities of the firm to third partiesCorrect
- DPartners' share of undistributed profits
Explanation
Under the Indian Partnership Act and ICAI's treatment, realisation proceeds are applied first to outside liabilities (debts to third parties). Partners' loans come next, then partners' capital, and any surplus is shared in the profit-sharing ratio. Paying partners' loans first would be wrong because outsiders rank ahead of partners.
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