Accounting for Partnerships: Basic Concepts: Assertion & Reason Type Questions

Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Question 1:
Assertion (A): Partners share profit and losses equally.
Reason (R): Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A). 

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). 

(c) Assertion (A) is true, but Reason (R) is false. 

(d) Assertion (A) is false, but Reason (R) is true.

Ans: Option (d)

Explanation:

(i) Assertion: False. Partners do not automatically share profits and losses equally in every case; equal sharing applies only when the partnership deed specifies it or where the law provides a default rule.

(ii) Reason: True. This is a correct description of the nature of a partnership - it is an agreement between persons to share profits of a business carried on by all or any of them acting for all.

(iii) Justification: The reason correctly defines partnership but does not make the assertion universally true. The distribution of profits and losses depends on the partnership deed; therefore the assertion is false while the reason is true.

Question 2:

Assertion (A): The Secret Partner does not participate in the affairs of the management.
Reason (R): The secret partner is not liable to pay debts of the firm.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A). 

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). 

(c) Assertion (A) is true, but Reason (R) is false. 

(d) Assertion (A) is false, but Reason (R) is true.

Ans: Option (c)

Explanation:

(i) Assertion: True. A secret partner remains undisclosed to the public and typically does not take part in the firm's management.

(ii) Reason: False. A secret partner, though undisclosed, is still a partner and therefore is ordinarily liable for the firm's debts to third parties to the same extent as other partners.

(iii) Justification: The assertion correctly states the management role of a secret partner, but the reason is incorrect because secrecy does not relieve a partner of liability for the firm's obligations.

Question 3:

Assertion (A): A minor may become a partner with the consent of all the partners.
Reason (R): A minor partner can share profits and losses as per the agreement but is not liable to pay the debts of the partnership firm.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A). 

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). 

(c) Assertion (A) is true, but Reason (R) is false. 

(d) Assertion (A) is false, but Reason (R) is true.

Ans: Option (b)

Explanation:

(i) Assertion: True. A minor may be admitted to the benefits of partnership with the consent of all existing partners, though a minor cannot be a full partner in the strict legal sense until attaining majority.

(ii) Reason: True. A minor admitted to the benefits of partnership may share in profits but is not personally liable for the partnership's debts.

(iii) Justification: Both statements are correct, but the reason does not explain why a minor may be admitted; it only describes the minor's rights and liabilities. Hence Reason is not the correct explanation of the Assertion.

Question 4:

Assertion (A): The interest on drawings is recorded in the debit side of the Current Account when the fixed capital method is followed.
Reason (R): The capital of the partners is fixed, and all the transactions are recorded in the Current Account.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A). 

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). 

(c) Assertion (A) is true, but Reason (R) is false. 

(d) Assertion (A) is false, but Reason (R) is true.

Ans: Option (a)

Explanation:

(i) Assertion: True. Under the fixed capital method, interest on drawings is charged to the partner and therefore recorded on the debit side of the partner's Current Account.

(ii) Reason: True. In the fixed capital method, partners' capitals remain unchanged and transactions such as interest on capital, interest on drawings, salary, etc., are recorded in the Current Account.

(iii) Justification: Because the capital accounts are fixed, drawing-related charges are handled through Current Accounts; therefore the Reason correctly explains the Assertion.

Question 5:

Assertion (A): When the partners put in additional capital, it is recorded in the credit side of the Current Account.
Reason (R): The Current Account records all the transactions relating to the interest on capital, drawings, commissions to partners, etc. when the capital is to remain fixed.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A). 

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). 

(c) Assertion (A) is true, but Reason (R) is false. 

(d) Assertion (A) is false, but Reason (R) is true.

Ans: Option (d)

Explanation:

(i) Assertion: False. When partners introduce additional capital, the amount is generally credited to their Capital Account (or to the Capital/Current Account depending on the system used), but under the fixed capital method additional capital is usually shown in the Capital Account, not the Current Account.

(ii) Reason: True. The Current Account records items such as interest on capital, drawings and partner's remuneration when the capital is intended to remain fixed.

(iii) Justification: The Reason correctly explains the role of the Current Account under fixed capital method, but it does not make the Assertion true. Hence Assertion is false and Reason is true.

Question 6:

Assertion (A): If percentage of interest on capital is not mentioned in the partnership deed, partners will not receive any interest on capital.
Reason (R): The interest on capital is charged on the capital invested by the partners.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A). 

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). 

(c) Assertion (A) is true, but Reason (R) is false. 

(d) Assertion (A) is false, but Reason (R) is true.

Ans: Option (b)

Explanation:

(i) Assertion: True. If the partnership deed does not specify a rate of interest on capital, no interest is payable by default unless partners agree otherwise.

(ii) Reason: True. Interest on capital is computed on the amount of capital invested by each partner.

(iii) Justification: Both statements are correct, but the Reason merely states the basis for computing interest (capital invested) and does not explain why interest will not be paid when the rate is not specified. Therefore Reason is not the correct explanation of the Assertion.

Question 7:

Assertion (A): A Partner needs to pay the interest on the loan at 6%, even if not mentioned in the partnership deed.
Reason (R): Interest on loans to partners is charged as per the Section 13 (d) of the Indian Partnership Act. 

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A). 

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). 

(c) Assertion (A) is true, but Reason (R) is false. 

(d) Assertion (A) is false, but Reason (R) is true.

Ans: Option (b)

Explanation:

(i) Assertion: True. Where partners have advanced loans to the firm and no rate is agreed, the default legal rate (commonly treated as 6% per annum) applies unless partners stipulate otherwise.

(ii) Reason: True. The Indian Partnership Act provides a statutory default rate for interest on partner's loans when no rate is agreed in the deed.

(iii) Justification: Both statements are correct; however the Reason simply cites the statutory provision and does not serve as a direct explanatory cause for the assertion in plain causal terms within the given context. Thus Reason is not the precise explanation of the Assertion.

Question 8:

Assertion (A): Interest on capital amount to `15,000 was shown on the credit side of the Profit and Loss Adjustment Account.
Reason (R): Interest on Capital is to be credited to the Capital/Current Accounts of the Partner.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A). 

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). 

(c) Assertion (A) is true, but Reason (R) is false. 

(d) Assertion (A) is false, but Reason (R) is true.

Ans: Option (d)

Explanation:

(i) Assertion: False. Interest on capital is an appropriation of profit and therefore appears on the debit side of the Profit and Loss Adjustment Account (or Profit and Loss Appropriation Account) and is credited to the partners' Capital or Current Accounts.

(ii) Reason: True. Interest on capital is indeed credited to the partners' Capital or Current Accounts.

(iii) Justification: The Reason correctly states the destination of interest on capital, but the Assertion incorrectly records it on the credit side of the Profit and Loss Adjustment Account; hence Assertion is false and Reason is true.

Question 9:

Assertion (A): Sandhya and Manoj entered into a partnership in the profit sharing ratio 1:2. Manoj agreed to pay Sandhya if her share of profit fell short of ₹50,000. The profit earned was ₹1,77,000. Sandhya asked him to pay ₹27,000, but Manoj refused to pay anything.
Reason (R): Profit is guaranteed only when the minimum amount of profit is not earned by the partner.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A). 

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). 

(c) Assertion (A) is true, but Reason (R) is false. 

(d) Assertion (A) is false, but Reason (R) is true.

Ans: Option (a)

Explanation:

(i) Assertion: True. Given the facts, Sandhya's claim depended on whether her share fell below the guaranteed ₹50,000; she asked Manoj for payment and he refused.

(ii) Reason: True. A guaranteed minimum of profit is payable only to the extent a partner's actual share of profit is less than the guaranteed amount.

(iii) Justification: Compute Sandhya's share: Total profit ₹1,77,000 in ratio 1:2 gives Sandhya 1/3 × ₹1,77,000 = ₹59,000. Since ₹59,000 exceeds the guaranteed ₹50,000, Manoj has no liability to pay any shortfall. Therefore both statements are true and the Reason explains the Assertion.

Question 10:

Assertion (A): The Goodwill of the firm is affected by the reputation of the firm.
Reason (R): The goodwill of the firm is dependent on the management capacity of the firm.

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A). 

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). 

(c) Assertion (A) is true, but Reason (R) is false. 

(d) Assertion (A) is false, but Reason (R) is true.

Ans: Option (b)

Explanation:

(i) Assertion: True. Goodwill represents intangible advantages such as reputation, customer loyalty and brand image; therefore the firm's reputation directly affects goodwill.

(ii) Reason: True. Management capacity and efficiency are also important factors that influence goodwill, since they affect future earning capacity and public confidence.

(iii) Justification: Both statements are correct, but management capacity is one of several factors that shape goodwill and does not by itself explain the specific effect of reputation. Hence Reason does not directly explain the Assertion.