Question

Assertion (a): 'Sale of goods for cash' does not effect Debt-Equity ratio.

Reason (R): 'Sale of goods on cash basis' neither affect 'Debt' nor 'Equity'.

In the context of the above two statements which of the following is correct:

Options

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

• Only (A) is correct.

• Only (R) is correct.

• Both (A) and (R) are incorrect.

Answer 1

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

Explanation:

The debt to equity ratio is unaffected by the sale of products for cash because neither debt nor equity are impacted.