Question : Assertion (A): The Current Ratio is unaffected by debt redemption.
Reason (R): Debentures that are redeemable within a year have an impact on the current ratio.
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: Assertion (A) is False and Reason (R) is true.
Solution :
Debentures that must be redeemed in the current year will be considered current liabilities, and as a result, their redemption will reduce current liabilities and current assets by the same amount, however, the impact on current assets will be greater. As a result, the current ratio will increase.
Hence option 4 is the correct answer.
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