Question : Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R)
Assertion (A): On reconstitution of a firm, 'Interest on Drawings' sshown in P & L Appropriation A/c.
Reason (R): On admission of a partner, 'Interest on Drawings' are charge against the profits.
In the context of the above statements, which one of the following is correct?
Codes:
Option 1: (A) is correct, but (R) is wrong.
Option 2: Both (A) and (R) are correct.
Option 3: (A) is wrong, but (R) is correct.
Option 4: Both (A) and (R) are wrong.
Correct Answer: (A) is correct, but (R) is wrong.
Solution : Answer = (A) is correct, but (R) is wrong.
Assertion (A) is correct because on reconstitution of a firm, 'Interest on Drawings' is shown in the Profit and Loss Appropriation Account. Reason (R) is incorrect because on the admission of a partner, 'Interest on Drawings' is not charged against profits but rather adjusted against the partner's capital.
Hence, the correct option is 1.
