At the dissolution of a firm, after paying external liabilities and partners’ loans, on what basis is the final amount payable to partners determined?

Correct answer: Balances of capital accounts after realization adjustments

During dissolution, the profit or loss on realization and other adjustments are recorded in the partners’ capital accounts. The final balance of each capital account determines the amount payable to that partner. The profit-sharing ratio is mainly used to distribute the realization profit or loss, not to determine the final amount payable. Exam tip: Remember that external liabilities and partners’ loans are settled before the partners’ capital balances.