In settling the accounts of a firm after dissolution losses including deficiencies of capital, shall be paid in which sequence? 1. By the partners individually in profit sharing ratio. 2. Out of profit. 3. Out of capital. Select the correct answer:

The correct answer is: B. 2, 1 and 3

The sequence of payment of losses and deficiencies of capital in settling the accounts of a firm after dissolution is as follows:

1. Out of profit.
2. By the partners individually in profit sharing ratio.
3. Out of capital.

This is because the first step is to see if there is any profit left in the firm. If there is, then this profit should be used to pay off any losses or deficiencies of capital. If there is no profit, then the partners must pay off the losses or deficiencies of capital in their profit sharing ratio. If the partners are unable to pay off the losses or deficiencies of capital, then their capital is used to pay off the remaining amount.

Here is a more detailed explanation of each option:

• Option 1: By the partners individually in profit sharing ratio.

This option is incorrect because it is not the first step in the sequence of payment of losses and deficiencies of capital. The first step is to see if there is any profit left in the firm. If there is, then this profit should be used to pay off any losses or deficiencies of capital. If there is no profit, then the partners must pay off the losses or deficiencies of capital in their profit sharing ratio.

• Option 2: Out of profit.

This option is correct because it is the first step in the sequence of payment of losses and deficiencies of capital. If there is any profit left in the firm, then this profit should be used to pay off any losses or deficiencies of capital.

• Option 3: Out of capital.

This option is correct because it is the third step in the sequence of payment of losses and deficiencies of capital. If there is no profit left in the firm, then the partners must pay off the losses or deficiencies of capital in their profit sharing ratio. If the partners are unable to pay off the losses or deficiencies of capital, then their capital is used to pay off the remaining amount.