Arrange the following in the sequence in which they shall be applied in payment at the time of dissolution of a firm:

(A) The debts of the firm to the third parties.

(B) Partner proportionately what is due to him/her from the firm for advances as distinguished from capital (i.e. partner's loan).

(C) Each partner proportionately what is due to him on account of capital.

(D) Divided among the partners in their profit sharing ratio.

Choose the correct answer from the options given below:

The correct answer is (A), (B), (C), (D).

According to Section 48 of the Indian Partnership Act, 1932 (and similar partnership laws globally), the assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, are applied in the following order of priority during the dissolution of a partnership firm:

1. Payment of Third-Party Debts (A): First, the debts of the firm to external/third parties must be paid off. This includes payments to creditors, bank loans, bills payable, and outstanding expenses. Therefore, statement (A) comes first.

2. Payment of Partners' Advances/Loans (B): After satisfying all external debts, the remaining amount is used to pay each partner rateably what is due to him or her from the firm for advances as distinguished from capital (commonly known as a partner's loan). Therefore, statement (B) comes second.

3. Return of Partner's Capital (C): After paying off external liabilities and partners' loans, the remaining assets are applied to pay each partner rateably what is due to him/her on account of capital. Therefore, statement (C) comes third.

4. Distribution of Surplus (D): If any surplus remains after all the above payments are completed, it is divided among the partners in their profit-sharing ratio. Therefore, statement (D) comes last.

Consequently, the correct sequential order of application of payments is (A) → (B) → (C) → (D).