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Question
Assertion (A): Rent payable to a partner is debited to Profit and Loss Account and not debited to the Profit and Loss Appropriation Account.
Reason (R): Rent payable to a partner is a charge against profits and not an appropriation of profit. Hence, it is debited to Profit and Loss Account.
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 the correct explanation of (A).
Both (A) and (R) are false.
(A) is false, but (R) is true.
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Solution
Both (A) and (R) are true and (R) is the correct explanation of (A).
Explanation:
Rent payable to a partner is treated as an expense of the firm, just like rent paid to an outsider. Since it is a charge against profits, it must be debited to the Profit and Loss Account, not to the Profit and Loss Appropriation Account, which deals only with appropriations like interest on capital, partner’s salary, and profit distribution. Hence, both the assertion and the reason are correct, and the reason properly explains the assertion.
