Question : Assertion (A): The redemption of Rs.2,000,000 in debentures will lower the ratio if the current ratio is 2:1.
Reason (R): Current liabilities are debentures redeemable within a year or within the operating cycle from the date of the balance sheet. As a result, the drop in Current Assets and Current Liabilities is equal. 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: Assertion (A) is False and Reason (R) is True.
Solution :
The current ratio will be improved by redeeming the debt because both current liabilities (other current liabilities) and current assets (cash or bank) have fallen by the same amount.
Debentures will be regarded as current liabilities if they must be paid within a year. They will be listed under the subheading other current liabilities under current liabilities. Obligations that must be paid off within a year are referred to as current liabilities.
Hence option 4 is the correct answer..
Related Questions
Trending Articles/News
