In settling the account of a firm after dissolution, the realisation from the assets of the firm must first be applied in paying:

To each partner rateably what is due to him from the firm for advances (loans)

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The debts of the firm to third parties

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To each partner rateably what is due to him on account of Capital

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To private creditors of partner

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Solution

The correct option is A The debts of the firm to third parties
Order of paying the debts of the firm are mentioned in Section 48 in the Indian Partnership Act, 1932. According to this act, the realisation from the assets of the firm must first be applied in paying the debts of the firm to third parties.

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Similar questions

Q. In settling the accounts of a firm after its dissolution, the assets of the firm shall be applied first in paying ___________.

Q. Pass Journal entries for the following transactions at the time of dissolution of the firm:
(a) Loan of Rs. 10,000 advanced by a partner to the firm was refunded.
(b) X, a partner, takes over an unrecorded asset (Typewriter) at Rs. 300.
(c) Undistributed balance (Debit) of profit an Loss Account Rs. 30,000. The firm has three partners X, Y and Z.
(d) Assets of the firm realised Rs. 1,25,000.
(e) Y who undertakes to carry out the dissolution proceeding is paid Rs, 2,000 for the same.
(f) Creditors are paid Rs. 28,000 in full settlement of their account of Rs. 30,000.

Pass Journal entries for the following transactions at the time of dissolution of the firm:
(a) Loan of ₹ 10,000 advanced by a partner to the firm was refunded.
(b) X, a partner, takes over an unrecorded asset (Typewriter) at ₹ 300.
(c) Undistributed balance (Debit) of Profit and Loss Account ₹ 30,000. The firm has three partners X,Y and Z.
(d) Assets of the firm realised ₹ 1,25,000.
(e) Y who undertakes to carry out the dissolution proceedings is paid ₹ 2,000 for the same.
(f) Creditors are paid ₹ 28,000 in full settlement of their account of ₹ 30,000.

Is the loan by a partner transferred to Realisation Account at the time of dissolution of a partnership firm? Why?

Q. A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2 . On 31st March, 2018, their Balance Sheet was as follows:


Liabilities		₹	Assets	₹
Creditors		38,000	Cash at Bank	11,500
Mrs. A's Loan		10,000	Stock	6,000
B's Loan		15,000	Debtors	19,000
Reserve		5,000	Furniture	4,000
A's Capital	10,000		Plant	28,000
B's Capital	8,000	18,000	Investments	10,000
			Profit and LossA/C	7,500



		86,000		86,000

The firm was dissolved on 31st March, 2018 and both the partners agreed to the following :
(a) A took Investments at an agreed value of ₹ 8,000. He also agreed to settle Mrs. A's Loan.
(b) Other assets realised as : Stock

—

₹ 5,000; Debtors

—

₹ 18,500; Furniture

—

₹ 4,500; Plant

—

₹ 25,000.
(c) Expenses of realisation came to ₹ 1,600.
(d) Creditors agreed to accept ₹ 37,000 in full settlement of their claims .
Prepare Realisation Account, Partners' Capital Accounts and Bank Account .

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