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On dissolution, payment is made in the following order:
AOutside creditors → Partner loans → Partner capital → Surplus to partners
BPartners first, then creditors, then loans by partners (typical)
CPartner capital → Outside creditors → Loans → Drawings (typical)
DCapital → Drawings → Creditors → Surplus (typical) (typical)
Answer & Solution
Correct answer: A. Outside creditors → Partner loans → Partner capital → Surplus to partners
1. Section 48 of the Partnership Act sets the order of application on dissolution.
2. External creditors first; then partner loans/advances; then partner capital; remaining surplus to partners in PSR.
3. Reversing this order would harm external claimants.
4. Hence (B) is the statutory order.
_Source: Maharashtra Balbharati Std XII Book-Keeping & Accountancy, Ch 6 "Dissolution of Partnership Firm", §6.2 ¶§6.2_