Question : Assertion (A) Partner distribution of earnings and losses is based on their profit sharing ratio, not their capitalization ratio. Reason (R): Profit is dispersed in proportion to appropriations if the amount of appropriations is greater than the amount of profit available for distribution.
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: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
Solution : Yes, partners generally distribute profit in their profit sharing ratio. Assertion is true. Reason are also true, when appropriations are more than the available profit. Profit is distributed in the ratio of appropriation. But reason does not explain why profits are distributed in the profit sharing ratio.
Hence the correct answer is option 2.
Question : Assertion (R): Profitability Ratios are the indicators of the profitability of the firm. Reason (R): Profitability Ratios, i.e., Gross Profit Ratio, Operating Ratio, Operating Profit Ratio, Net Profit Ratio, and Return on Investment Ratio help in assessing the
Question : Assertion (A): The Current Ratio is unaffected by debt redemption. Reason (R): Debentures that are redeemable within a year have an impact on the current ratio.
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.
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 (A): The ratio that results from dividing current assets by current liabilities is known as the liquid ratio. Reason (R): Liquid Assets/Current Liabilities is the formula for calculating the liquid ratio.
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