Assertion (A): Negative Balance of Statement of Profit and Loss is shown in Notes to Accounts under the sub-head ‘Reserve and Surplus’. Reason (R): As per Companies Act, whether the balance in Statement of Profit and Loss is positive or negative, it is to be shown under ‘Reserve and Surplus’. In the context of the above two statements, which of the following is correct?

Question

KollegeApply · Accepted Answer

(A) and (R) both are correct and (R) correctly explains (A). Explanation: A negative balance (debit balance) in the Statement of Profit and Loss is shown under the head ‘Reserves and Surplus’ as a negative figure in the Notes to Accounts. The Companies Act requires that whether the balance in the Statement of Profit and Loss is positive or negative, it should be presented under ‘Reserve and Surplus’ in the financial statements. This makes the reason a correct explanation for the assertion.

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