Question

Given below are two statements:
Statement I: The loans for tangible property such as machinery and equipment are generally hypothecated loans.
Statement II: Liquidation is the process of buying assets or securities, in order to get a better liquid position.
In the light of the above statements, choose the most appropriate answer from the options below:

• A. Both statements I and II are true
• B. Both statements I and II are false
• C. Statement I is correct but statement II is false
• D. Statement I is incorrect but statement II is true

Hint:

Think of "liquidation" as turning solid assets (like buildings or machinery) into "liquid" cash by selling them off, not by purchasing more assets.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Understanding agricultural credit instruments, asset types, and accounting terms like liquidation is essential for financial management.

Step 2: Detailed Explanation:
Let us evaluate each statement:
- Statement I: Movable tangible assets, such as tractors, farm machinery, and dairy equipment, are typically financed through hypothecated loans. The farmer retains possession and operates the machinery, while the bank registers a hypothecation charge. This is correct.
- Statement II: Liquidation refers to the process of selling off non-cash assets (such as inventory, equipment, or land) to convert them into cash, often to settle outstanding debts during insolvency or business closure. It is not the process of "buying" assets. Thus, Statement II is incorrect.
Therefore, Statement I is correct, but Statement II is false.

Step 3: Final Answer:
Statement I is correct but Statement II is false, corresponding to Option (C).