What indicates that a firm has incurred losses during the liquidation process?

The indication that a firm has incurred losses during the liquidation process is that the funds are insufficient to settle obligations. During liquidation, a business converts its assets into cash to pay off its debts. If the total amount of cash received from selling the assets is less than what is owed to creditors, it indicates that the firm has suffered losses.

When the liquidated assets do not cover all liabilities, it reflects an overall negative financial condition of the firm, signifying that the losses exceed the value of the assets. This situation can lead to partners potentially losing their investments and creditors not receiving full repayment.

The other options do not indicate losses in the same way. Settling all debts suggests that the liquidation was effective and did not result in any losses. Higher payouts to partners can be a sign of profitability, and selling assets at a higher value than market value would typically not occur during a liquidation process, as good financial practices often lead to a sale at or below market rates to ensure a quicker transaction.