Question : Assertion (A): In order to make up for the partner's capital contribution that exceeds the profit-sharing ratio, the company pays interest on his capital.
Reason (R): Interest on capital is 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 and Reason (R) is not the correct explanation of Assertion (A)
Option 3: Assertion (A) is true but Reason (R) is false
Option 4: Both Assertion (A) and Reason (R) are not correct
Correct Answer: Assertion (A) is true but Reason (R) is false
Solution :
Yes, the partner gets compensated by the interest on capital if the profit sharing ratio is lower than the capital contribution made by the partner. So the assertion is correct. If no other information is provided, interest on capital is regarded as appropriations. So, the assertion is false.
Hence, the correct option is 3.
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