On dissolution of a partnership firm, whose claims are paid first out of the proceeds from the assets?

Correct answer: Outside creditors’ liabilities

On dissolution, the proceeds realised from the firm’s assets are first used to settle liabilities due to outside creditors. Partners’ loans are paid next, followed by the return of partners’ capital; any remaining surplus is then distributed among the partners. Exam tip: remember the order—outside liabilities, partners’ loans, partners’ capital, and finally surplus.