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.
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.
Question : Assertion (A): A partner's interest on capital is paid only from profits. Reason (R): Interest on capital is a profit appropriation that must be provided regardless of profit or loss.
Question : Assertion (A) : Profit and Loss Appropriation account shows the correct profit earned by the firm.
Reason (R) : The net Profit adjusted after takin into account the interest on capital, Interest on drawings, Salaries/ Commission Paid
Question : Assertion (A): When partners agree on a profit-sharing ratio, they also agree on a loss-sharing ratio.
Reason (R): Although it is stated in the definition that profits will be shared. However, profits also include losses.
Question : Assertion: Physical capital is tangible in nature Reason: Physical capital can be seen and touchable.
Regular exam updates, QnA, Predictors, College Applications & E-books now on your Mobile