Question

Assertion (A): Availability of leasing facilities may reduce the funds required to be invested in fixed assets thereby reducing the fixed capital requirements.

Reason (R): When an asset is taken on lease, the firm pays lease rentals to use it and avoids to invest huge sums required to purchase it. 

Options

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

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

• Assertion (A) is true but Reason (R) is false.

• Assertion (A) is false but Reason (R) is true.

Answer 1

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

Explanation:

Leasing facilities can lower the amount of money needed for fixed assets because a company can use leasing agreements to pay lease rentals rather than buy the asset outright, which can be easier to manage than the initial outlay required for ownership.