Question : Assertion (A): In order to compensate a partner for contributing capital to the firm in excess of the profit-sharing ratio, the firm pays such interest on the partner's capital.
Reason (R): Interest on capital is treated as a charge against profit.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A)
Option 3: Assertion (A) is true but Reason (R) is false
Option 4: Assertion (A) is false but Reason (R) is true
Correct Answer: Assertion (A) is true but Reason (R) is false
Solution : In order to compensate a partner for contributing capital to the firm in excess of the profit-sharing ratio, the firm pays such interest on the partner's capital. Interest on capital is treated as an appropriation of profit. Hence, the correct option is 3.
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