Multiple choice

Directions:The following question consists of two statements, one labelled as the 'Assertion' (A) and the other as 'Reason' (R). You have to examine these two statements carefully and select the answer from the options given below Assertion (A)—Income tax paid is not shown on the debit side of the sole proprietor's Profit and Loss account. Reason (R)—It is an appropriation of profit and thus goes to Profit and Loss Appropriation Account.

  1. Both (A) and (R) are individually true and (R) is the correct explanation of (A)

  2. Both (A) and (R) are individually true but (R) is not the correct explanation of (A)

  3. (A) is true but (R) is false

  4. (A) is false but (R) is true
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

For a sole proprietor, income tax is NOT debited to the Profit and Loss Account as an expense. Instead, it's treated as an appropriation of profit, meaning it's distributed to the Profit and Loss Appropriation Account after calculating net profit. The Assertion claiming it's not shown in P&L is FALSE. The Reason explaining it's an appropriation is TRUE.

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