Question

Assertion (A): On dissolution of a firm, advertisement suspense account appearing on the assets side of the balance sheet will not be transferred to Realisation Account. 

Reason (R): Advertisement Suspense Account is a fictitious asset and hence will be transferred to the debit side of partner’s capital accounts. 

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.

• Only (R) is correct.

Answer 1

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

Explanation:

On dissolution, advertisement suspense account (a fictitious asset) does not go to realisation account as it cannot be realised into cash. Instead, its balance is directly transferred to partners’ capital accounts by debit, effectively writing it off.