Question : Assertion A:- Unrecorded income when recorded is shown in the credit of revaluation account at the time of change in profit sharing ratio.
Reason R:- It is shown in the credit of the revaluation account because it is a liability.
In the context of the above two statements, which of the following is correct?
Option 1: Assertion A and Reason R are correct but reason R is not the correct explanation of Assertion A
Option 2: Both Assertion A and Reason R are correct and Reason R is the correct explanation of Assertion A
Option 3: Only Assertion A is correct
Option 4: Assertion A is not correct but Reason R is correct
Correct Answer: Assertion A and Reason R are correct but reason R is not the correct explanation of Assertion A
Solution : Answer = Assertion A and Reason R are correct but Reason R is not the correct explanation of Assertion A.
Unrecorded income is credited to the revaluation account during changes in the profit-sharing ratio to adjust partners' capital. However, it is not considered a liability; instead, it represents an increase in the value of the business.
Hence, the correct option is 1.
