Question

Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R).

Assertion (A) - Any reserves or accumulated profits/losses appearing in the balance sheet should be transferred to the partner’s capital accounts in an old ratio.

Reason (R) - Accumulated profits/losses appear in the balance sheet after a change in profit-sharing ratio.

[0.88 marks]

• A. Both A and R are true, and R is the correct explanation of A.
• B. Both A and R are true, but R is not the correct explanation of A.
• C. A is true, but R is false.
• D. A is false, but R is true.

Answer 1

The correct option is C A is true, but R is false.

The accumulated profits/losses appear on the balance sheet before the profit-sharing ratio changes, and are distributed to the old partners in the old ratio before the reconstitution of the partnership takes place.