There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.
Assertion (A): Profit & Loss adjustment A/c is prepared to rectify the errors after the preparation of the final accounts of the partnership firm.
Reason (R): This account is prepared before Profit & Loss Appropriation A/c.
Answer & explanation
Correct answer: option 3
The correct answer is option 3- Assertion (A) is true, but Reason (R) is False.
Assertion (A): Profit & Loss adjustment A/c is prepared to rectify the errors after the preparation of the final accounts of the partnership firm. THIS IS CORRECT. If, after the final accounts have been prepared, some omission or commissions are noticed say in respect of the interest on capital, interest on drawings, partner’s salary, commission, etc. necessary adjustments can be made in the partner’s capital accounts through the Profit and Loss Adjustment Account, to rectify the same.
Reason (R): This account is prepared before Profit & Loss Appropriation A/c. THIS IS INCORRECT. Profit and loss adjustment account is prepared to record those transactions or omissions and errors which were left while preparing the final accounts whereas profits are distributed between partners by preparing profit and loss appropriation account which is made in process of making final accounts of the partnership firm. Thus, the profit and loss adjustment account is prepared after the profit and loss appropriation account.
Thus, assertion is true and reason is false.