Question

Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative from the options given below:
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 investing huge sums required for its purchase.

• 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.

Hint:

Leasing is an effective financial strategy that reduces capital investment risks while ensuring access to required assets.

Answer 1

The Correct Option is A

Step 1: Understanding Leasing and Fixed Capital
Leasing allows businesses to use assets without making large capital investments, reducing fixed capital requirements.
Step 2: Explaining the Relationship
Since leasing involves periodic lease rentals instead of a lump sum payment, it directly reduces the need for upfront funds, supporting Assertion (A) and Reason (R) as correct and interconnected.