Question : Assertion (A): If the ratio is currently 2:1, selling office equipment for Rs.15,000 (book value: Rs.20,000) will increase it.
Reason (R): The cash proceeds from the sale of office equipment will enhance current assets (cash), while current liabilities stay the same. As a result, the current ratio will rise.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
Option 3: Assertion (A) is true but Reason (R) is False
Option 4: Assertion (A) is False and Reason (R) is True.
Correct Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Solution :
Sale of Office Equipment for Rs. 15,000 (Book Value Rs. 20,000): The sale of Office Equipment (e.g., Typewriter ) results in an increase in Cash balance by Rs. 15,000 and this leads to an increase in current assets.
There will be no other effect of the sale of office equipment since it is a fixed asset.
Hence option 1 is the correct answer.
