Question

The firm of X, Y and Z was dissolved on 1st April, 2020. Y demands that his loan of 25,000 be paid before payment of capitals of the partners. But X and Z demand that capital be paid before the payment of loan by Y. Who is correct and why?​

Answer 1

Answer:

Y is correct.

Explanation:

At the time of dissolution of a partnership firm, every external liability needs to be paid of before the partners get back their capital. Due to unlimited liability in a partnership, the partners' capitals may be used to repay the debts of the firm in case assets of the business are insufficient to pay back the debts.