In the usual order of settling liabilities on the dissolution of a firm, whose claim is paid first?

Correct answer: External liabilities

On dissolution, the firm’s assets are first used to settle external liabilities, such as trade creditors and other outside lenders. Partners’ loans are paid after external liabilities, followed by the return of partners’ capital; any remaining surplus is then distributed among the partners. Exam tip: Realisation expenses are paid first from the available cash, but among the liabilities, external liabilities have priority.