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Question
Assertion (A): Loan from a relative of a partner is an outside liability.
Reason (R): It is not transferred to the Realisation Account.
In the context of the above two statements, which option is correct?
Options
Assertion (A) and Reason (R) are correct, but the Reason (R) is not the correct explanation of Assertion (A).
Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
Only Assertion (A) is correct.
Assertion (A) is not correct, but the Reason (R) is correct.
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Solution
Only Assertion (A) is correct.
Explanation:
A loan from a partner’s relative is legally considered a third-party outside liability, which makes the assertion true. However, the reason is completely false because all outside liabilities must be transferred to the Realisation Account to be closed and paid off.
