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Question
Assertion (A): Debt means Long-term Liabilities.
Reason (R): Debt includes both Long-term and Short-term Liabilities.
In the context of the above two statements, which option 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 (А).
Assertion (A) is correct, and Reason (R) is incorrect.
Assertion (A) is not correct, but Reason (R) is correct.
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Solution
Assertion (A) is correct, and Reason (R) is incorrect.
Explanation:
In accounting ratio analysis (such as the Debt-to-Equity Ratio), the term “Debt” refers exclusively to long-term liabilities like debentures, bonds, and long-term loans, which makes Assertion (A) factually correct. Conversely, the term for the combination of short-term and long-term liabilities is “Total Debt.” Since standard debt ratios deliberately isolate long-term obligations from current liabilities to test long-term solvency, Reason (R) is incorrect.
