Question : Which section of the Partnership Act specifies the mode of settlement of accounts on the dissolution of a partnership firm?
Option 1: Section 48
Option 2: Section 43
Option 3: Section 45
Option 4: Section 47
Correct Answer: Section 48
Solution :
According to Section 48 of the Indian Partnership Act, 1932:
(a) Loss Provision: Losses, including capital deficits, are to be covered first out of profits, then out of capital, and last, if required, by each partner individually in the percentage of profits that they were entitled to.
(b) Application of assets provision - The firm's assets, including any funds donated by the partners to make up capital shortfalls, shall be applied in the following manner and order:
1. Repayment of loans obtained from outside sources,
2. The repayment of advances and loans made by the partners,
3. Partners' capital payments,
4. In accordance with the profit-sharing ratio, the partners will split the remaining funds.
Hence, the correct option is 1.
