For the Assertion (A) and Reason (R) below, choose the correct alternative.
Assertion (A): Partners distribute profits and losses in their profit sharing ratio and not in the ratio of their capitals.
Reason (R): If The amount of appropriations, is more than the amount of profit available for distribution, profit is distributed in the ratio of appropriations.
Answer & explanation
Correct answer: option 2
Yes, partners generally distribute profit in their profit sharing ratio. Assertion is true. Reason is also true. When appropriations are more than the available profit, the Profit is distributed in the ratio of appropriation. But reason does not explain why profits are distributed in the profit sharing ratio.