Section 48 of IPA : Section 48: Mode Of Settlement Of Accounts Between Partners

Explanation using Example

Imagine a scenario where a partnership firm 'XYZ Associates' has decided to dissolve. The firm has some profits, capital assets, and debts to third parties. The partners were sharing profits in the ratio of 3:2:1. Upon dissolution, they need to settle accounts.

First, they use the firm's profits to cover any losses, including capital deficiencies. Since the profits aren't enough, they then use the capital contributed by the partners. The remaining losses are covered by the partners themselves, with contributions in the ratio of their profit-sharing, i.e., 3:2:1.

After addressing the losses, they proceed to use the remaining assets to clear the firm's debts to third parties. Once the external debts are settled, they pay back the partners any money that was advanced to the firm beyond their initial capital contributions. Following that, they reimburse the partners for their capital contributions.

If there are any assets left after all these payments, the residue is divided among the partners according to their profit-sharing ratio of 3:2:1.