Question

Assertion (A): In a specified situation, interest on a partner’s capital is written in the Profit and Loss Account.

Reason (R): Interest on a partner’s capital is written on the debit side of the profit and Loss Account if it is specified to be a charge against profits.

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 (R) is correct.

• Both (A) and (R) are wrong.

Answer 1

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

Explanation:

Interest on a partner’s capital is usually an appropriation of profit and shown in the Profit and Loss Appropriation A/c. However, if the partnership deed treats it as a charge, it is shown in the Profit and Loss A/c (debit side) even if there is a loss. So, both the assertion and reason are correct, and the reason rightly explains the assertion.