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Question

A and B are partners in a firm sharing profits in the ration 3:2. Mrs. A has given a loan of Rs. 20,000 to the firm and the firm also obtained a loan of Rs. 10,000 from B. The firm was dissolved and its assets were realised for Rs.25,000. State the order of payment of Mrs. A's loan and B's loan with reason, if there were no creditors of the firm.

Solution
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According to Section 48 of the Indian Partnership Act, 1932:
The following order has to be followed for the discharge of liabilities:
1. Payment to loans provided by third parties;
2. Payment to loans and advances provided by the partners;
3. Payment of capitals of partners;
4. The residue will be divided among the partner's in the profit sharing ratio.

According to the above rules, Mrs. A, a third party, has to be paid off before B.
Hence, amount paid to Mrs. A= Rs. 20000;
amount paid to B= Rs. 5000.

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