Question

Assertion (A): Application Money on debentures issued may be collected in lumpsum or in instalments as is decided by the company.

Reason (R): Application Money received in lumpsum is credited to Debentures Application and Allotment Account whereas application money received when issue price of debentures is received in instalments is credited to Debentures Application Account.

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

Options

• 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 (A).

• Assertion (A) is incorrect but Reason (R) is correct.

• Both Assertion (A) and Reason (R) are incorrect.

Answer 1

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

Explanation:

Debenture money may be collected in a lump sum or in instalments. The Reason correctly states the accounting treatment in both cases, but it does not explain why the amount may be collected in either manner.