Assertion (A): In a specified situation, interest on a partner’s capital is written in the Profit and Loss Account. Reason (R): Interest on a partner’s capital is written on the debit side of the profit and Loss Account if it is specified to be a charge against profits. In the context of the above two statements, which of the following is correct?

Question

KollegeApply · Accepted Answer

Both (A) and (R) are correct and (R) is the correct reason of (A). Explanation: Interest on a partner’s capital is usually an appropriation of profit and shown in the Profit and Loss Appropriation A/c. However, if the partnership deed treats it as a charge, it is shown in the Profit and Loss A/c (debit side) even if there is a loss. So, both the assertion and reason are correct, and the reason rightly explains the assertion.

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