On dissolution, repayment of partners’ capital is made on what basis?

Correct answer: Available balance

During dissolution, the firm’s assets are realised and the proceeds are used in a prescribed order: outside liabilities are paid first, then partner loans, and finally the partners’ capital balances are settled, subject to the applicable accounting rules and available funds. Thus repayment of capital depends on the balance available after realisation and payment of prior claims, not automatically on the profit-sharing ratio. The profit-sharing ratio is used for distributing realised profit or loss, not for deciding an arbitrary cash repayment basis. Drawings are past withdrawals and do not determine the amount available for settlement. Sale value relates to an individual asset or total realisation, but it is not itself the basis of repayment. Therefore option B is the best answer. If available cash is insufficient, partners may receive only a proportionate amount or may need to contribute for a deficiency.