A partnership firm consisting of A, B and C was dissolved. The firm had outside creditors, and there were also certain advances made by partners apart from their capital contribution. After dissolution, it was found that

Section 48 of the Indian Partnership Act, 1932 provides that in settling accounts between the partners after a dissolution of partnership, the following rules shall, subject to any agreement, be observed: Losses, including deficiencies of capital shall be paid first out of undistributed profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits. The assets of the firm, including the sums, contributed by the partners to make up losses or deficiencies of capital shall be applied in the following manner and order: in paying outside creditors; in repaying advances made by partners (distinct from investment of capital); in repaying capital to partners; and the ultimate residue, if any, shall be divided among the partners in the proportions in which profits are divisible. Right to Return of Premium: To buy entry into an existing firm, a new partner sometimes has to pay a premium to the existing partners in addition to any investment of capital. In terms of Section 51 of the Indian Partnership Act, 1932, on dissolution, he is entitled to demand the return of a proportion of the premium if the partnership was for a fixed term and was dissolved before the expiry of that term, unless dissolution was caused by - agreement, or misconduct of the party seeking return of the premium, or death of a partner. The partnership firm of A, B and C can resolve the dispute regarding the order in which losses should be borne and how the assets should be applied, in compliance with Section 48 of the Act.