Question

Assertion (A): Purchase of Fixed Asset on ‘Long-term Deferred Payment’ would result in outflow of cash.

Reason (R): There will be ‘No flow of Cash’, as purchase of Fixed Asset on Long-term Deferred Payment involves Non-current Assets and Non-current Liability (Long-term deferred payment).

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 (A).

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

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

Answer 1

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

Explanation:

Assertion (A) is false because buying a fixed asset on deferred payment is a credit transaction, so no cash is paid immediately. Reason (R) is true because this transaction only increases a non-current asset and a non-current liability, meaning no cash flows in or out of the business at the time of purchase.