Arrange the following in correct sequence in the event of dissolution of a partnership firm.
1. Residue, if any, divided among the partners.
2. Paying to each partner for his capital.
3. Paying the debts of third party.
4. Paying to each partner for advances made by him.
Select the correct answer:

Solution (By Examveda Team)

At the time of dissolution of a partnership firm, the settlement of accounts is done in a specific order as per the Partnership Act.

First, the debts of third parties are paid off, since external liabilities have priority over partners.

Second, payments are made to each partner for any advances they had given to the firm (treated as loans).

Third, payments are made to the partners for their capital contributions.

Finally, if there is any residue left, it is divided among the partners in their profit-sharing ratio.

Thus, the correct sequence is 3 → 4 → 2 → 1.