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Subjects
Class 12AccountancyDissolution of a Partnership FirmClosing the BusinessEasy
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During the dissolution of a partnership firm, whose claim is paid first after the external liabilities are settled?

Answer and explanation

Correct answer: Partners’ loans

On dissolution, the payment order is: external liabilities first, partners’ loans second, partners’ capital third, and any remaining surplus is distributed last. Therefore, partners’ loans are paid first after external liabilities. Exam tip: a partner’s loan is treated separately from capital and is settled before the partner’s capital account.

Related tags

Partnership DissolutionRealisation AccountPayment OrderPartners LoansClosing BusinessClosing The BusinessDissolution Of A Partnership FirmAccountancy
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10 more MCQs
  1. 1What is the process of permanently closing a partnership firm and ending its existence called?
  2. 2Which account is prepared at the time of dissolution of a firm to determine the profit or loss arising from the settlement of its assets and external liabilities?
  3. 3What is generally done with the assets of a partnership firm at the time of its dissolution?
  4. 4On dissolution of a partnership firm, from what are the external liabilities generally paid?
  5. 5To which account is the realisation profit transferred?
  6. 6To which account is the realisation loss transferred?
  7. 7What happens to the existence of the firm after dissolution?
  8. 8Dissolution expenses are generally debited to which account?
  9. 9At the time of dissolution, if an asset is sold for ₹10,000, what amount will be credited to the Realisation Account?
  10. 10On dissolution of a firm, to whom is the final cash balance paid after settling outside liabilities and other amounts due?
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