Exergy or the available energy is based on the second law of thermodynamics and goes back to Maxwell and Gibbs. It is the exergy content and not the energy content, that truly represents the potential:of the substance to cause change. Exergy is the only rational basis for evaluating the system performance. The aim of this project is to study in detail the exergy variation in the solar assisted absorption system. The influence of the cycle parameters are analysed on the basis of first law and second law effectiveness and the results indicated various ways of improving system performance by better design. Also a better quality of the evaporator has more effect on the system performance than the better quality of other components. It was shown that second law analysis quantitatively visualizes losses within a system and gives clear trends for optimization.