Arrange the following steps in the correct statutory sequence for settling accounts and distributing assets upon the dissolution of a partnership firm, from first to last.
- 1Payment of debts and liabilities owed to external third-party creditors
- 2Settlement of loans and advances made by partners to the firm beyond their capital
- 3Repayment of capital contributions to the respective partners
- 4Distribution of the remaining surplus among partners according to their agreed profit-sharing ratio
Answer
The correct statutory order for distributing assets upon partnership dissolution is: first, paying external third-party creditors; second, settling partner loans and advances; third, returning partner capital contributions; and fourth, distributing any remaining surplus in the agreed profit-sharing ratio.
Under standard commercial law (Section 44 of the Partnership Act), the settlement of accounts upon dissolution follows a strict hierarchy: external third-party liabilities are paid first, followed by partner loans and advances, then partner capital refunds, and finally the distribution of any remaining surplus among partners according to their agreed profit-sharing ratio.
Step-by-Step Solution
Key Concept
Statutory Sequence of Asset Distribution upon Partnership Dissolution
Estimated Time:1m 15s