Assertion-Reason Based MCQs

Given below are two statements (in each question), one labelled as Assertion (A) and other labelled as Reason (R):
1. Assertion (A): Statement of Profit & Loss shows the results of business operations for the year ended on
that date.
Reason (R): It is prepared in the form prescribed in Part II of Schedule III of the Companies Act, 2013.

In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Assertion (A) is not correct but the Reason (R) is correct.
2. Assertion (A): Balance Sheet and Statement of Profit & Loss show the Line Items and details thereof are
given in the Notes to Account.
Reason (R): The Companies Act, 2013 has prescribed so for easy understanding of the financial statements.

In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are not correct.
3. Assertion (A): Shares subscribed on which total nominal (face) value of the share is called-up and received
by the company is shown as ‘Shares Subscribed and Fully Paid-up’ under Subscribed Capital
on the face of the Balance Sheet.
Reason (R): Shares subscribed on which total nominal (face) value of the share is called-up and received

by the company is shown as ‘Shares Subscribed but not Fully Paid-up’ under Subscribed
Capital in the Note to Account on Share Capital.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are not correct.
4. Assertion (A): Shares subscribed on which total nominal (face) value of the share is either not called-up or
where it has been called-up but has not been received by the company is shown as ‘Shares
Subscribed but Not Fully Paid-up’ under Subscribed Capital in the Notes to Account on
Share Capital.
Reason (R): Shares subscribed on which total nominal (face) value of the share is called-up and has also

been received by the company is shown as ‘Shares Subscribed and Fully Paid-up’ under
Subscribed Capital in the Note to Accounts on Share Capital.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Assertion (A) is not correct but the Reason (R) is correct.

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 5. Assertion (A): Share Capital shown in the Balance Sheet includes both Equity Share capital and Preference
Share Capital.
Reason (R): Share Capital shown in the Balance Sheet includes Equity Share Capital and not Preference

Share Capital.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of
Assertion (A).
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are not correct.

6. Assertion (A): Shares that have been forfeited and reissued, gain (profit) if any, is shown under
Reserve Capital.
Reason (R): Gain (profit) on reissue of forfeited shares is transferred to Capital Reserve and shown under

Reserves and Surplus in the Balance Sheet.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Assertion (A) is not correct but the Reason (R) is correct.

7. Assertion (A): Surplus, i.e., Balance in Statement of Profit & Loss can be positive or negative and in both
the cases it is shown in Note to Accounts on Reserves and Surplus.
Reason (R): Schedule III of the Companies Act, 2013 prescribes that whether the balance in Surplus, i.e.,

Balance in Statement of Profit & Loss is positive (Undistributed or Accumulated Profits) or
negative (Accumulated Losses), it is to be shown under Reserves and Surplus.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Assertion (A) is not correct but the Reason (R) is correct.

8. Assertion (A): Borrowings that are payable after 12 months or after the period of Operating Cycle from
the date of Balance Sheet are Long-term Borrowings.
Reason (R): Current Liabilities are those liabilities which are payable within 12 months or within the

period of Operating Cycle from the date of Balance Sheet. Since, loans that are not payable
within the above period are Long-term Borrowings.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Assertion (A) is not correct but the Reason (R) is correct.

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 9. Assertion (A): Borrowings taken during the year that are due for payment within 12 months or within the
period of Operating Cycle from the date of Balance Sheet are shown as Short-term Borrowings.
Reason (R): Schedule III of the Companies Act, 2013 prescribes that a borrowing taken during the year

which is due for payment within 12 months or within the period of Operating Cycle from the
date of Balance Sheet shall be shown as Current Maturities of Long-term Debts.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Assertion (A) is not correct but the Reason (R) is correct.

10. Assertion (A): Deferred Tax Liabilities and Deferred Tax Assets are shown at the net amount.
Reason (R): Schedule III of the Companies Act, 2013 prescribes that Deferred Tax Liabilities and Deferred

Tax Assets are shown as a line item at net value, i.e., Deferred Tax Liabilities less Deferred Tax
Assets or vice versa.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are not correct..

11. Assertion (A): Trade Payables is the amount payable against purchase of goods and/or services taken in
the normal course of business.
Reason (R): Trade Receivables is the amount receivable against sale of goods and/or services rendered in

the normal course of business.

In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Assertion (A) is not correct but the Reason (R) is correct.

12. Assertion (A): Trade Payables is the amount payable against purchase of goods and/or services taken in
the normal course of business, if payable after 12 months or after the period of Operating
Cycle from the date of Balance Sheet is shown as Other Long-term Liabilities.
Reason (R): Schedule III of the Companies Act, 2013 prescribes that a liability that is due for payment

after 12 months or after the period of Operating Cycle from the date of Balance Sheet is
Non-current Liabilities.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Assertion (A) is correct but the Reason (R) is not correct.
(d) Assertion (A) is not correct but the Reason (R) is correct.

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13. Assertion (A): Income received in advance is shown as Other Current Liabilities.
Reason (R): Income received in advance is an income, therefore, it is shown as Revenue from Operations

in the Statement of Profit & Loss.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Assertion (A) is correct but the Reason (R) is not correct.
(d) Both Assertion (A) and Reason (R) are not correct.

14. Assertion (A): Loans and Advances that are receivable after 12 months or after the period of Operating
Cycle from the date of Balance Sheet are shown as Non-current Asset in the Balance Sheet
of a company.
Reason (R): Since, loan is receivable after 12 months or after the period of Operating Cycle, it is not

a Current Asset. An asset that is not a Current Asset is shown as Non-current Asset as is
prescribed by Schedule III (Part I) of the Companies Act, 2013.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Assertion (A) is not correct but the Reason (R) is correct.

15. Assertion (A): Goods sold on a credit period of 36 months will be shown as Other Current Assets, if the
Operating Cycle Period is more than 36 months.
Reason (R): An asset that is receivable within 12 months or within the period of Operating Cycle is shown

as Current Assets while all other assets are Non-current Assets.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are not correct.

16. Assertion (A): Inventories may be shown as Non-current asset.

Reason (R): Inventories are shown as current assets because they are held to be realised at the earliest.

In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Assertion (A) is not correct but the Reason (R) is correct.

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17. Assertion (A): Cash and Cash Equivalents is always shown as Current Asset.
Reason (R): Cash and Cash Equivalent is a Current Asset because they are the most liquid asset and are

thus, Current Asset.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Assertion (A) is correct but the Reason (R) is not correct.
(d) Assertion (A) is not correct but the Reason (R) is correct.
18. Assertion (A): Trade Receivables are shown as Current Asset unless they are receivable after 12 months
or after the period of Operating Cycle from the date of Balance Sheet.
Reason (R): Trade Receivables are Current Assets but if it is agreed to be received after 12 months or after

the period of Operating Cycle, they will be shown as Non-current Asset.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are not correct.
19. Assertion (A): Operating Cycle is the time between acquisition of an asset for processing and its realisation
into Cash and cash equivalents.
Reason (R): Any product takes time to be converted into finished goods, i.e., before it is ready for sale. This

time period involved in the activity is the period of Operating Cycle.
In the context of above two statements, which of the following is correct?

(a) Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of
Assertion (A).
(b) Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are incorrect.

ANSWERS

1. (a) 2. (b) 3. (d) 4. (a)

5. (c) 6. (d) 7. (b) 8. (b)

9. (c) 10. (b) 11. (a) 12. (b)

13. (c) 14. (b) 15. (b) 16. (d)

17. (b) 18. (b) 19. (b)