Given below are two statements: One is labeled as Assertion A and the other is labeled as Reason R.

Assertion A: When a partner retires, all the assets and liabilities are revalued according to current value.

Reason R: The balance sheet should show the correct values of assets and liabilities.

In the light of the above statements, choose the most appropriate answer from the options given below:

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UGC NET Paper 2: Commerce 13th June 2023 Shift 1
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  1. Both A and R are correct and R is the correct explanation of A
  2. Both A and R are correct but R is not the correct explanation of A
  3. A is correct but R is not correct
  4. A is not correct but R is correct

Answer (Detailed Solution Below)

Option 2 : Both A and R are correct but R is not the correct explanation of A
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UGC NET Paper 1: Held on 21st August 2024 Shift 1
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50 Questions 100 Marks 60 Mins

Detailed Solution

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The correct answer is Both A and R are correct but R is not the correct explanation of A.

Key Points

 Assertion A: When a partner retires, all the assets and liabilities are revalued according to current value.

  • A revaluation account is prepared at the time of admission of a new partner or in case of death or retirement of a partner. The Revaluation profit or loss is transferred to the capital a/c of all the partners comprising deceased or retiring partners in their old profit-sharing ratio (PSR).
  • At the time of retirement, the assets and liabilities are revalued so that the partners' share in profit/loss due to revaluation can be ascertained.

Reason R: The balance sheet should show the correct values of assets and liabilities.

  • A balance sheet is a financial statement that reports a company's assets, liabilities, and shareholder equity. 
  • The basic equation that is followed while preparing the balance sheet is Assets = Liabilities + Capital.
  • The balance sheet is prepared to report an organization's financial position at the end of an accounting period.

Therefore we can say that Both A and R are correct but R is not the correct explanation of A

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