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On dissolution, what is paid first, before the partners’ capital is returned?

Answer and explanation

Correct answer: The firm’s external liabilities

On dissolution, the payment order is: external liabilities first, partners’ loans next, and partners’ capital last. Therefore, the firm’s external liabilities are paid first. Paying only tax is not sufficient because all other external claims must also be settled. Exam tip: remember the sequence—external liabilities, partners’ loans, and then capital.

Related tags

DissolutionClosing BusinessPartnership AccountsSettlement Of AccountsClosing The BusinessDissolution Of A Partnership FirmAccountancyClass 12 Mcq

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