Question

Assertion (A): Capital Employed = Non Current Assets + Current Assets − Current Liabilities.

Reason (R): Capital Employed = Shareholder’s Funds + Non Current Liabilities.

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

Options

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

• Both (A) and (R) are true and (R) is the correct explanation of (A).

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

Both (A) and (R) are true and (R) is the correct explanation of (A).

Explanation:

Capital Employed is computed as Non-Current Assets + Working Capital (Current Assets − Current Liabilities). It can also be calculated as Shareholders’ Funds plus Non-Current Liabilities. Both formulas provide the same result, indicating that both Assertion and Reason are true, and Reason correctly explains Assertion.