Question

Given below are two statements:
Statement (I): The income generated through self-liquidating loans is sufficient to clear off the entire loan amount in the same accounting year.
Statement (II): Net income \& net operating income can be calculated from the balance sheet. In light of the above statements, choose the most appropriate answer from the options given below:

• A. Both Statement (I) and Statement (II) are correct.
• B. Both Statement (I) and Statement (II) are incorrect.
• C. Statement (I) is correct but Statement (II) is incorrect.
• D. Statement (I) is incorrect but Statement (II) is correct.

Hint:

Self-liquidating loans: Repaid from project income in one year. Income calculations come from the income statement, not the balance sheet.

Answer 1

The Correct Option is C

Statement (I) is correct: Self-liquidating loans are short-term loans designed to finance activities (e.g., purchasing inventory or seeds) that generate income sufficient to repay the loan, including principal and interest, within the same accounting period, typically a year. For example, a farmer may take a loan to buy seeds, harvest crops, sell them, and repay the loan from the proceeds.
- Statement (II) is incorrect: Net income and net operating income are derived from the {income statement (profit and loss statement), which details revenues, expenses, and profits over a period. The {balance sheet, however, provides a snapshot of assets, liabilities, and equity at a specific point in time and does not directly provide income calculations. Thus, option (3) is correct, as Statement (I) is true, but Statement (II) is false.