Question

Assertion (A): Change in profit sharing ratio leads to dissolution of partnership and not the firm. Q.

Reason (R): Change in profit sharing ratio leads to dissolution of old firm and a new firm comes into existence.

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

Options

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

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

• Only (A) is correct.

• Both (A) and (R) are wrong.

Answer 1

Only (A) is correct.

Explanation:

• A change in the profit-sharing ratio results in the dissolution of the old partnership (relationship among partners), not the dissolution of the firm. The business continues.
• The same firm continues after the change in profit-sharing ratio; a new firm does not come into existence.