After all outside liabilities and partners’ loans are paid on dissolution of a firm, on what basis is the remaining amount generally distributed finally?

Correct answer: Final balances of partners’ capital accounts

On dissolution, outside liabilities are paid first, followed by partners’ loans. The remaining amount is then paid to partners according to the final balances of their capital accounts after adjusting realization profit or loss and other dissolution items. The profit-sharing ratio is not directly used for the final payment because the capital accounts have already been adjusted. Exam tip: Remember the order—outside liabilities, partners’ loans, and finally capital accounts.