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.

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

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

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

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

Answer 1

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

• Assertion (A) states that availability of leasing facilities may reduce the funds required to be invested in fixed assets, thereby reducing the fixed capital requirements. This is true because leasing allows firms to use assets without purchasing them outright, thereby reducing the initial capital outlay required for investment in fixed assets.
• Reason (R) states that when an asset is taken on lease, the firm pays lease rentals to use it and avoids investing huge sums required to purchase it. This is also true and provides a correct explanation for Assertion (A) as it elaborates on how leasing helps in reducing the fixed capital requirements by spreading the cost of asset usage over time through lease rentals.

Therefore, both Assertion (A) and Reason (R) are true, and Reason (R) correctly explains Assertion (A). Hence, option (A) is the correct choice.