The assets of the Partnership firm, including any sums contributed by the partners to make-up deficiencies of capital at the time of dissolution, shall be applied in the following manner and order.
(A) In paying each partner rateably what is due to him for advances as distinguished from capital.
(B) In paying to each partner rateably what is due to him on account of capital.
(C) In paying the debts of the firm to third parties
(D)Dividing among the partners in the proportion in which they were entitled to share profits.
Choose the correct answer from the options given below:

Correct option is A

During the dissolution of a partnership, the assets are applied in a specific order to ensure that liabilities are settled before any profits are divided. The correct order is:

1. (C) In paying the debts of the firm to third parties: The first priority is to pay off all the external debts. This includes debts owed to suppliers, creditors, and any other third-party liabilities.

2. (A) In paying each partner rateably what is due to him for advances: After the external debts are settled, any loans or advances provided by the partners to the firm (in addition to their capital contributions) should be paid back.

3. (B) In paying to each partner rateably what is due to him on account of capital: Once advances are cleared, the capital invested by each partner in the business is paid next. The repayment is done in proportion to each partner's contribution.

4. (D) Dividing among the partners in the proportion in which they were entitled to share profits: After settling debts and paying back capital and advances, the remaining assets, if any, are divided among the partners based on their agreed profit-sharing ratio.

Therefore, the correct order is C, A, B, D.

Information Booster:

1. (C) In paying the debts of the firm to third parties: The firm’s external debts must be settled first, as these are liabilities owed to individuals or organizations outside the partnership.

2. (A) In paying each partner rateably what is due to him for advances: After external debts, partners are repaid any loans or advances they made to the firm, separate from their capital contributions.

3. (B) In paying to each partner rateably what is due to him on account of capital: Partners' capital is returned after all other obligations (debts and advances) are satisfied. This is done in proportion to the original capital each partner contributed.

4. (D) Dividing among the partners in the proportion in which they were entitled to share profits: Finally, any remaining balance is divided among the partners in accordance with the profit-sharing agreement, typically reflected in the partnership agreement.