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When is a partner’s loan repaid relative to external liabilities?

Answer and explanation

Correct answer: After external liabilities

On dissolution, the firm’s available assets are first used to pay external liabilities. A partner’s loan is then repaid, and any remaining amount is used for settling the partners’ capital accounts. Therefore, the correct answer is ‘after external liabilities’. Exam tip: remember the order—external liabilities, partners’ loans, and then partners’ capital.

Related tags

Partnership DissolutionPartner LoanExternal LiabilitiesPayment PriorityClosing BusinessClosing The BusinessDissolution Of A Partnership FirmAccountancy

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