Under Section 48 of the Indian Partnership Act 1932, in what order of priority must the assets of the firm be applied upon dissolution?
Answer and explanation
Correct answer: C. Debts to third parties, partners loans, partners capital, remainder in profit ratio
- Step 1: Consult Section 48(b) of the Indian Partnership Act 1932 regarding application of assets upon dissolution.
- Step 2: First, debts of the firm to third parties outside creditors must be paid off.
- Step 3: Second, advances and loans made by partners to the firm are repaid.
- Step 4: Third, capital balances of partners are returned. Any surplus is distributed in profit-sharing ratio.
Answer
Debts to third parties, partners loans, partners capital, remainder in profit ratio.
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