Question

Assertion (A): In the case of a partnership firm, appropriation out of profits are debited to the Profit and Loss Appropriation Account.

Reason (R): Interest on capital and partner’s salary are appropriation of profit.

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

Options

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

• Both (A) and (R) are true and (R) is a correct explanation of (A).

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

Both (A) and (R) are true and (R) is a correct explanation of (A).

Explanation:

In a partnership firm, items like interest on capital and partner’s salary are considered appropriations of profit, not charges against profit. These are debited to the Profit and Loss Appropriation Account, which is specifically meant for distributing net profit among the partners. Hence, both the assertion and the reason are true, and the reason correctly explains why such appropriations are recorded in the Profit and Loss Appropriation Account.