Assertion (A): If the operating cycle of a business is 18 months, goods sold on credit period of 15 months will be classified as current assets. Reason (R): An asset shall be classified as current asset if the period of the operating cycle of the business is of a period of more than 12 months. In the context of the above two statements, which of the following is correct?

Question

KollegeApply · Accepted Answer

Both (A) and (R) are true and (R) is the correct explanation of (A). Explanation: If the operating cycle is 18 months, then any asset (like goods sold on 15 months’ credit) that gets realized within this period is treated as a current asset. This is because, as per Schedule III, an asset is current if it is expected to be realized within the operating cycle, even if that exceeds 12 months.

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