Question

Assertion (A): A and B are partners sharing profits equally. They admit C for `1/6` th share. On that date, the Advertisement Suspense Account existed in their books at ₹ 2,00,000. It was carried forward to the new Balance Sheet since it is likely to give benefit to the firm for the next five years.

Reason (R): One-fifth of ₹ 2,00,000 was written off, and the remaining amount was carried forward to the new Balance Sheet.

In the context of the above two statements, which of the following is correct?

पर्याय

• Both (A) and (R) are correct, and (R) is the correct explanation of (A).

• Both (A) and (R) are correct, but (R) is not the correct explanation of (A).

• Only (A) is correct.

• Both (A) and (R) are wrong.

Answer 1

Both (A) and (R) are wrong.

Explanation:

Both the Assertion and the Reason are incorrect according to mandatory accounting standards. Assertion (A) is false because any existing fictitious assets or accumulated losses (like the Advertisement Suspense Account) must be completely written off against the old partners’ capital accounts in their old profit-sharing ratio at the time of a new partner’s admission. These amounts cannot be carried forward to the new balance sheet, regardless of future potential benefits. Consequently, Reason (R) is also false, as it describes a proportionate write-off that is not the correct procedure; the entire ₹ 2,00,000 must be written off completely at the point of reconstitution.