Question

Assertion (A): Redemption of debentures will not affect the Debt-Equity Ratio.

Reason (R): Debentures to be redeemed are Current Liabilities.

In the context of the above two statements, which option is correct?

विकल्प

• Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (А).

• Assertion (A) is correct, and Reason (R) is incorrect.

• Assertion (A) is not correct, but Reason (R) is correct.

Answer 1

Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (А).

Explanation:

Assertion (A) is correct because debentures due for redemption within the year are no longer counted as long-term debt. Paying them off does not change long-term debt or equity, leaving the Debt-Equity Ratio unchanged. Reason (R) is correct and provides the right explanation because it highlights the accounting rule that reclassifies these upcoming redemptions as Current Liabilities.