Explain the order of settlement of accounts of a dissolved firm as laid down in Section 48 of the Indian Partn

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Q. Explain the order of settlement of accounts of a dissolved firm as laid down in Section 48 of the Indian Partnership Act, 1932.

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Treatment of losses — Section 48(a). Losses, including any deficiency of capital, are paid: first out of profits; next out of capital; and lastly, if still necessary, by the partners individually in the proportion in which they were entitled to share profits.

Order of applying assets — Section 48(b). Subject to agreement among the partners, the firm's assets (including any amount partners contribute to make good a capital deficiency) are applied, strictly in this order:

Order	Application of assets
1st	Debts of the firm to third (outside) parties
2nd	Amounts due to each partner rateably for advances/loans, as distinguished from capital
3rd	Amounts due to each partner rateably on account of capital
4th	The residue, if any, divided among the partners in their profit-sharing ratio

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

CBSE 2026Set ANNUAL1 mark
$Q. Complete the table: Creditors Bills Payable Third Party Liability 40,000 60,000 ..........$
›Reveal solutionSolution

Third Party Liability = ₹1,00,000. Liabilities owed to outsiders are the sum of trade creditors and bills payable.

Method

"Third party" (external) liabilities are all the debts a firm owes to people who are not partners. Here the two outside liabilities are Creditors and Bills Payable, so they are added together:

Item Amount (₹)
Creditors 40,000
Add: Bills Payable 60,000
Third Party Liability 1,00,000
…

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CBSE 2022Set ANNUAL1 mark
$Q. Answer in one sentence only. Who is called insolvent person?$
›Reveal solutionSolution

An insolvent person is a person (or partner) whose assets are insufficient to meet his liabilities and who is therefore legally incapable of paying his debts in full.

In accounting, the term matters most in a dissolution (Section 48). When a partner becomes insolvent, he cannot bring in cash to make good a debit balance on his capital account; that deficiency (his "capital deficiency") then has to be borne …

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Creditors	Bills Payable	Third Party Liability
40,000	60,000	..........

Item	Amount (₹)
Creditors	40,000
Add: Bills Payable	60,000
Third Party Liability	1,00,000
…

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Q.Explain the order of settlement of accounts of a dissolved firm as laid down in Section 48 of the Indian Partnership Act, 1932.

Concept understanding — Settlement of Accounts on Dissolution (Section 48 of the Indian Partnership Act, 1932)

Q.Explain the order of settlement of accounts of a dissolved firm as laid down in Section 48 of the Indian Partnership Act, 1932.

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