Question

There are two statements Assertion (A) and Reason (R):

Assertion (A) : At the time of dissolution of partnership firm, Realisation Account is prepared.

Reason (R) : When the firm is dissolved, its books of accounts are to be closed and the profit or loss arising on realisation of its assets and discharge of its liabilities is to be computed.

Choose the correct option from the following :

• 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.

Hint:

Both statements are true. The Reason says why the Realisation Account is needed, so it explains the Assertion.

Answer 1

The Correct Option is A

Step 1: Understand the Assertion:
When a firm is dissolved, the business stops and the assets are sold.
The Realisation Account is opened to record this sale of assets and the payment of liabilities. So Assertion (A) is TRUE.

Step 2: Understand the Reason:
On dissolution the books of the firm must be closed.
The profit or loss from selling the assets and paying the liabilities has to be found. The Realisation Account finds exactly this figure. So Reason (R) is TRUE.

Step 3: Link the two statements:
The Realisation Account is prepared because the profit or loss on realisation must be computed.
So R gives the purpose behind A. R is the correct explanation of A.

Step 4: Why the other options are wrong:
(B) says R does not explain A. This is wrong, because R states why the account is prepared.
(C) says R is false. This is wrong, because R is a correct statement.
(D) says A is false. This is wrong, because the Realisation Account is always prepared at dissolution.

Final Answer:
Both statements are true and R explains A, so the answer is option (A).