Question

Assertion (A): Surplus, i.e., Balance in Statement of Profit & Loss is shown under Reserves and Surplus.

Reason (R): Surplus, i.e., Balance in Statement of Profit & Loss is an item of Balance Sheet which shows accumulated profits or losses.

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

Options

• Both Assertion (A) and Reason (R) are correct but Reason (R) is not the correct explanation for Assertion (A).

• Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation for Assertion (A).

• Only Assertion (A) is correct.

• Both Assertion (A) and Reason (R) are not correct.

Answer 1

Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation for Assertion (A).

Explnation:

 Surplus (the Balance in Statement of Profit & Loss) is shown as a separate item under “Reserves and Surplus” on the Balance Sheet. It represents the accumulated profits (or losses) carried forward and therefore is an item of the Balance Sheet reflecting accumulated profits/losses; this is precisely why it appears under Reserves and Surplus.