There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.
Assertion (A): Capital employed of a firm is the amount invested by partners in the business to run business of the firm and earn profit.
Reason (R) Capital employed will not be the same when calculated through the asset side approach & liabilities side approach.
Answer & explanation
Correct answer: option 3
The actual firm’s capital (net assets) by deducting outside liabilities from the total assets (excluding goodwill and fictitious assets).
Firms’ Capital = Total Assets (excluding goodwill) – Outside Liabilities Where outside Liabilities include both long term and short-term Liabilities.