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 to the partner in the P/L appropriation account.
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: Assertion (A) is False, But Reason (R) is True
Correct Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Solution : To demonstrate how the business appropriates or distributes the profit made throughout the year, a P&L Appropriation Account is generated. It is a development of the profit and loss account. At the conclusion of each fiscal year, it is prepared following the production of the profit and loss account and after adjusting for Interest on Capitals, Interest on Drawings, Salary/Commission to Partners, and Transfer to Reserve, the Profit and Loss Appropriation Account is prepared to distribute profits/losses among the Partners.
Hence the correct answer is option 1.
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