5. Accounting Equation

Meaning of accounting equation-

Accounting Equation is based on the Dual Aspect Concept of accounting. It means every transaction has dual aspect or two aspects – debit and credit. It holds that for every debit there is a credit of equal amount. The accounting equation, also known as the basic accounting equation or balance sheet equation is a statement that a company’s total asset is the sum of its liability and its shareholder’s equity. It ensures that the balance sheet is balanced.

We can express it mathematically as follows:

Liabilities = Assets – Capital

Assets = Liabilities + Capital

Capital = Assets – Liabilities

The above relationship called accounting equation

Effect of Transactions on Accounting Equation:-

A transaction may affect either both sides of the equation by the same amount or one side of the equation only, by both increasing and decreasing it by equal amounts.

Transaction effect two side-Those transactions that affect two items of the accounting equation or Balance Sheet.

Transaction affecting opposite sides are:

Increase in asset, Increase in Liability – Transaction such as credit purchases increase asset (stock) and also increase liability (creditors). Similarly, Loan from bank increases asset (cash or bank) and also increases liability (Bank Loan)
Decrease in Liability, Decrease in asset – Transaction of payment to a creditor decreases liability (creditor) and also reduces asset (cash or bank).
Increase in Asset, Increase in Owner’s Capital – Introduction of capital by the proprietor increases asset (cash or bank) and also liability (owner’s capital0.
Decrease in Owner’s Capital, Decrease in Asset – Drawings by the proprietor decrease liability (owner’s capital) and also asset (cash or bank).

Transaction affecting same side but in opposite direction are:

Increase in asset, Decrease in another Asset – Transaction such as cash purchases or receipt from debtors increase one asset (goods and cash or bank, respectively) and decrease another asset (cash or bank and debtors).
Decrease in Liability, Increase in Another Liability – Settlement of Creditor by issue of bill of exchange decreases a liability (creditor) and increases another liability (bill of exchange).

Transactions affecting More Than Two Items – Some transaction affect more than two items of the accounting equation or a balance sheet. For example, when a sale is made in cash for 30,000, it is made at cost (25,000) plus profit (5,000). Cost of goods (25,000) reduces asset (stock of goods): cash increases by 30,000 and the owner’s capital increases by the profit (5,000). It should be noted that profit increases the owner’s capital and loss decreases it.

Effect of Adjustment Transactions on Accounting Equation:-

Outstanding Expenses are those expenses which have been incurred but have not been paid. It is deducted from Capital.
Prepaid Expenses are those expenses which have been paid in advance, i.e., they are not yet due but paid. It is deducted from cash.
Accrued Income is that income which has been earned but not received during the current accounting period. It is add in capital.
Unearned Income or Income Received in advance is that income which has been received but not earned during the current accounting period. It is add in cash.

PRATICAL PROBLEMS

Q1. What will be effect of the following on the Accounting Equation?

Started business with cash Rs. 45,000
Opened a bank account with a deposit of Rs. 4,500
Purchase goods from M/s. Sun & Co. for Rs. 11,200

Ans –

S.No.	Transactions	Assets = Liabilities + Capital Cash + Bank + Stock = (Creditor )
1.	Started business with cash	45,000 = 45,000
2.	Opened a bank account with a deposit	45,000 = 45,000 (4,500) + 4,500 =
3.	Purchase goods from M/s Sun & Co.	40,500 + 4,500 = 45,000 11,200 = 11,200
	New Equation	40,500 + 4,500 + 11,200 = 11,200 45,000

Assets = Liabilities + capital

(Cash+bank+stock) = (creditors) + capital

40,500+45, 00+11,200 = 11,200 + 45,000

56,200 = 56,200

Q2. Show the Accounting Equation for the following Transaction:

Gopinath started business with cash 25,000
Purchased goods from Shyam 10,000
Sold goods to Sohan costing Rs. 1,800 1,500
Gopinath Withdrew from Business 5,000

Ans –

S.No.	Transactions	Assets = Liabilities + Capital Cash + Bank + Debtors = (Creditor )
1.	Gopinath started business with cash	25,000 = 25,000
2.	Purchased goods from Shyam	25,000 = 25,000 10,000 = 10,000
3.	Sold goods to Sohan costing	25,000 + 10,000 = 10,000 + 25,000 (1800) + 15,00 = (300)
4.	New Equation Gopinath withdrew from business	25,000 + 8,200 + 15,00 = 10,000 + 24,700 (5,000) = (5,000)
	New Equation	20,000 + 8,200 + 1,500 = 10,000 + 19,700

Assets = Liabilities + capital

(Cash+bank+Debtors) = (creditors) + capital

20,000+8,200+1,500 = 10,000 + 19,700

29,700 = 29,700

Q3. Prepare an Accounting Equation and Balance Sheet on the following basis:

Ajeet started business with cash Rs. 20,000.
He purchased furniture for Rs. 2,000.
He paid rent of Rs. 200.
He purchased goods on credit Rs. 3,000
He sold goods (cost price Rs. 2,000) for Rs. 5,000 on cash.

Ans –

S.No.	Transactions	Assets = Liabilities + Capital Cash + furniture + Stock = (Creditor )
1.	Ajeet started business with cash	20,000 = 20,000
2.	He Purchased furniture	20,000 = 20,000 (2,000) + 2,000 =
3.	He paid rent	18,000 + 2,000 = 20,000 (200) = (200)
4.	He purchased goods on credit	17,800 + 2,000 = 19,800 3,000 = 3,000
5.	He sold goods on cash	17,800 + 2,000 + 3,000 = 3,000 + 19,800 5,000 (2,000) = 3,000
	New Equation	22,800 + 2,000 + 1,000 = 3,000 + 22,800

Assets = Liabilities + capital

(Cash+furniture+stock) = (creditors) + capital

22,800+2,000+1,000 = 3,000 + 22,800

25,800 = 25,800

Q4. Prepare Accounting Equation from the following:

Started business with cash Rs. 1, 00,000 and Goods Rs. 20, 000.
Sold goods worth Rs. 10,000 for cash Rs. 12,000.
Purchased furniture on credit for Rs. 30,000.

Ans –

S.No.	Transactions	Assets = Liabilities + Capital Cash + Stock + Furniture = (Creditor )
1.	Started business with cash	1,00,000 + 20,000 = 1,20,000
2.	Goods sold for cash	1,00,000 + 20,000 = 1,20,000 12,000 (10,000) + 2,000
3.	Purchase furniture on credit.	1,12,000 + 10,000 = 1,22,000 30,000 = 30,000
	New Equation	1,12,000 + 10,000 + 30,000 = 30,000 + 1,22,000

Assets = Liabilities + capital

(Cash+Stock+Furniture) = (creditors) + capital

1, 12,000+10,000+30,000 = 30,000 + 1, 22,000

1, 52,000 = 1, 52,000

Q5. Develop an Accounting Equation from the following transactions:

Mohan commenced business with cash 50,000
Purchased goods for cash 30,000
Purchased goods on credit 20,000
Sold goods (costing Rs. 10,000) for 12,000
Bought furniture on credit 2,000
Paid cash to a creditor 15,000
Salary paid 1,000

Ans –

S.No	Transactions	Assets = Liabilities + Capital Cash + Stock + Furniture = (Creditor )
1.	Mohan started business with cash	50,000 = 50,000
2.	Goods purchased on cash	50,000 = 50,000 (30,000) + 30,000
3.	Goods Purchase on credit.	20,000 + 30,000 = 50,000 20,000 = 20,000
4.	Goods sold	20,000 + 50,000 = 20,000 + 50,000 12,000 + (10,000) = 2,000
5.	Purchased furniture on credit	32,000 + 40,000 = 20,000 + 52,000 2,000 = 2,000
6.	Paid cash to a creditor	32,000 + 40,000 + 2,000 = 22,000 + 52,000 (15,000) = (15,000)
7.	Salary paid to employee	17,000 + 40,000 + 2,000 = 7,000 + 52,000 (1,000) (1,000)
	New Equation	16,000 + 40,000 + 2,000 = 7,000 + 51,000

Assets = Liabilities + capital

(Cash+Stock+Furniture) = (creditors) + capital

16,000+40,000+2,000 = 7,000 + 51,000

58,000 = 58,000

Q6. Prepare an Accounting Equation on the basis of the following transaction:

Started business with cash Rs. 70,000.
Credit purchase of goods Rs. 18,000.
Payment made to creditors in full settlement Rs. 17,500.
Purchase of machinery for cash Rs. 20,000.
Depreciation on machinery Rs. 2,000.

Ans –

S.No.	Transactions	Assets = Liabilities + Capital Cash + Stock + Machinery = (Creditor )
1.	Started business with cash	70,000 = 70,000
2.	Credit Purchased of Goods	70,000 = 70,000 18,000 = 18,000
3.	Payment made to creditors	70,000 + 18,000 = 18,000 70,000 (17,500) = (500)
4.	Purchased Machinery for cash	52,500 + 18,000 = 70,500 (20,000) 20,000
5.	Depreciation on Machinery	32,500 + 18,000 + 20,000 = + 70,500 (2,000) = ( 2,000)
	New Equation	32,500 + 18,000 + 18,000 = + 68,500

Assets = Liabilities + capital

(Cash+Stock+Machinery) = + capital

32,500+18,000+18,000 = 68,500

68,500 = 68,500

Q7. Show the effect of the following transactions on the Accounting Equation:

Started business with cash Rs. 50,000.
Salaries paid Rs. 2,000.
Wages outstanding Rs. 200.
Interest due but not paid Rs. 100.
Rent paid in advance Rs. 150.

Ans –

S.No.	Transactions	Assets = Liabilities + Capital Cash + Advances Outstanding Expenses = Expenses
1.	Started business with cash	50,000 = 50,000
2.	Salaries Paid	50,000 = 50,000 (2,000) = (2,000)
3.	Wages Outstanding	48,000 = 48,000 = 200 + (200)
4.	Interest Due but not paid	48,000 = 200 47,800 = 100 + (100)
5.	Rent paid in advance	48,000 = 300 + 47,700 (150) + 150 =
	New Equation	47,850 + 150 = 300 + 47,700

Assets = Liabilities + capital

(Cash+Advances expenses) = (Outstanding Expenses) + Capital

(47,850+150) = 300 + 47,700

48,000 = 48,000

Q8. What will be the effect of the following on the Accounting Equation?

Harish started business with cash Rs. 18,000.
Purchased goods for cash Rs. 5,000 and on credit Rs. 2,000.
Sold goods for cash Rs. 4,000 (costing Rs. 2,400)
Rent paid Rs. 1,000 and rent outstanding Rs. 200.

Ans –

S.No	Transactions	Assets = Liabilities + Capital Cash + Stock = Creditors + Outstanding Rent
1.	Harish Started business with cash	18,000 = 18,000
2.	Goods Purchased for cash and on credit	18,000 = 18,000 (5,000) + 7,000 = 2,000
3.	Good sold for cash	13,000 + 7,000 = 2,000 + 18,000 4,000 (2,400) = 1,600
4.	New Equation Rent paid and rent outstanding	17,000 + 4,600 = 2,000 + 19,600 (1000) = 200 + (1,200)
	New Equation	16,000 + 4,600 = 2,000 + 200 + 18,400

Assets = Liabilities + capital

(Cash+Stock) = (Creditors+Outstanding Rent) + capital

(16,000+4,600) = (2,000+200) + 18,400

20,600 = 20,600

Q9. Use accounting equation to show the effect of the following transactions of M/s Royal Traders:

Started business with cash Rs. 1, 20,000.
Purchased goods for cash Rs. 10,000.
Rent received Rs. 5,000.
Salary outstanding Rs. 2,000.
Sold goods for cash (costing Rs. 5,000) Rs. 7,000.
Goods destroyed by fire Rs. 500.

Ans –

S.No	Transactions	Assets = Liabilities + Capital Cash + Stock = Outstanding Salary
1.	Started business with cash	1,20,000 = 1,20,000
2.	Purchased Goods for cash	1,20,000 = 1,20,000 (10,000) + 10,000
3.	Rent received	1,10,000 + 10,000 = 1,20,000 5,000 = 5,000
4.	Salary Outstanding	1,15,000 + 10,000 = 1,25,000 2,000 (2,000)
5.	Good sold for cash	1,15,000 + 10,000 = 2,000 + 1,23,000 7,000 (5,000) 2,000
6.	Goods destroyed by fire	1,22,000 + 5,000 = 2,000 + 1,25,000 (500) (500)
	New Equation	1,22,000 + 45,00 = 2,000 + 1,24,500

Assets = Liabilities + capital

(Cash+Stock) = Outstanding Salary + capital

(1, 22,000+4,500) = 2,000 + 1, 24,500

1, 26,500 = 1, 26,500

Q10. Prove that the accounting equation is satisfied in all the following transactions of Suresh. Also prepare a Balance Sheet.

Commenced business with cash Rs. 60,000.
Paid rent in advance Rs. 500
Purchased goods for cash Rs. 30,000 and credit Rs. 20,000.
Sold goods for cash Rs. 30,000 costing Rs. 20,000.
Paid salary Rs. 500 and salary outstanding being Rs. 100.
Bought motorcycle for personal use Rs. 5,000.

Ans –

S.No	Transactions	Assets = Liabilities +Capital Cash + Advance + Stock = Creditors + Outstanding rent Salary
1.	Started business with cash	60,000 = 60,000
2.	Rent paid in Advance	60,000 = 60,000 (500) + 500
3.	Good purchased for cash and credit	59,500 + 500 = 60,000 (30,000) + 50,000 = 20,000
4.	Good sold for cash	29,500 + 500 + 50,000 = 20,000 60,000 30,000 + +(20,000) 10,000
5.	Salary paid and Outstanding Salary	59,500 + 500 + 30,000 = 20,000 + 70,000 (500) = (500) 100 (100)
6.	Purchased motorcycle for personal use	59,000 + 500 + 30,000 = 20,000 + 100 + 69,400 (5,000) = (5,000)
	New Equation	54,000 + 500 + 30,000 = 20,000 + 100 + 64,400

Assets = Liabilities + capital

(Cash+Advance rent +Stock) = (Creditor +Outstanding Salary) + capital

(54,000+500+30,000) = (20,000+100) + 64,400

84,500 = 84,500

Balance Sheet

Liabilities	Amount	Assets	Amount
capital	64,400	Cash	54,000
Creditors	20,000	Prepaid Rent	500
Salary Outstanding	100	Stock	30,000
	85,500		85,500

Q11. Show the effect of the following transaction and also prepare a Balance sheet:

Started business with cash rs. 60,000.
Rent received rs. 2,000
Accrued interest rs. 500.
Commission Received in advance rs. 1,000.
Amount withdrawn rs. 5,000.

Ans –

S.No	Transaction	Assets = Liabilities + Capital Cash + Accrued = Advance interest commission
1.	Started business with cash	60,000 = 60,000
2.	Rent Received	60,000 = 60,000 2,000 = 2,000
3.	Accrued interest	62,000 = 62,000 500 = 500
4.	Commission received in advance	62,000 + 500 = 62,500 1,000 = 1,000
5.	Amount Withdrawn	63,000 + 500 = 1,000 + 62,500 (5,000) (5,000)
	New Equation	58,000 + 500 = 1,000 + 57,500

Assets = Liabilities + capital

(Cash+Accrued interest) = Advance Commission + capital

(58,000+500) = 1,000 + 57,500

58,500 = 58,500

Balance Sheet

Liabilities	Amount	Assets	Amount
Capital	57,500	Cash	58,000
Advance commission	1,000	Accrued interest	500
	58,500		58,500

Q12.Raghunath had the following transaction in an accounting year:

Commenced business with cash rs. 50,000.
Paid into bank rs.10, 000.
Purchased goods for cash rs.20, 000 and credit rs. 30,000.
Sold goods for cash rs.40, 000 costing rs. 30,000.
Rent paid rs. 500.
Rent outstanding rs. 100.
Bought furniture rs. 5,000 on credit.
Bought refrigerator for personal use rs. 5,000.
Purchased motorcycle for cash rs. 20,000.

Create an Accounting Equation to show the effect of the above and also show his Balance sheet.

Ans –

S.No	Transactions	Assets = liabilities + capital Cash + Bank + Stock + Furniture + Motor = Creditors + Outstanding cycle Rent
1.	Started business with cash	50,000 50,000
2.	Paid cash into bank	50,000 50,000 (10,000) +10,000
3.	Purchased goods for cash and credit	40,000 +10,000 50,000 20,000 (20,000) 30,000 30,000
4.	Goods sold for cash	20,000 +10,000 + 50,000 = 30,000 + 50,000 40,000 (30,000) 10,000
5.	Rent paid	60,000 +10,000 + 20,000 = 30,000 + 60,000 (500) (500)
6.	Outstanding Rent	59,500 +10,000 + 20,000 = 30,000 + 59,500 100 (100)
7.	Furniture Purchased on credit	59,500 +10,000 +20,000 = 30,000 100 + 59,400 5,000 = 5,000
8.	Purchased refrigerator for personal use	54,500 +10,000 +20,000 5,000 = 35,000 100 + 59,400 (5,000) (5,000)
9.	Purchased motorcycle for cash	54,500 +10,000 +20,000 5,000 = 35,000 100 + 54,500 (20,000) 20,000
	New Equation	34,500 +10,000 +20,000 + 5,000 + 20,000 = 35,000 + 100 + 54,400

Assets = Liabilities + capital

(Cash+Bank+Stock+Furniture+ = (Creditor+Outstanding + capital

Motorcycle) = Rent)

(34,500+10,000+20,000+ = (35,000+100) + 54,400

5,000+20,000)

89,500 = 89,500

Balance Sheet

Liabilities	Amount	Assets	Amount
Capital	54,400	Cash	34,500
Creditors	35,000	Bank	10,000
Rent Outstanding	100	Stock	20,000
		Furniture	5,000
		Motorcycle	20,000
	89,500		89,500

Q13. Prepare an accounting Equation from the following:

Started business with cash rs. 50,000 and goods rs. 30,000.
Purchased goods for cash rs.30, 000 and on credit from karan rs.20, 000.
Goods costing rs.40, 000 were sold for rs.55, 000.
Withdrew cash for personal use rs. 10,000.
Rent outstanding rs. 2,000.

Ans –

S.No	Transaction	Assets = Liabilities Capital Cash + Stock = Creditors + Outstanding Rent
1.	Started business with cash and goods	50,000 + 30,000 80,000
2.	Goods purchased for cash and on credit from karan	50,000 + 30,000 = 80,000 (30,000) 30,000 20,000 = 20,000
3.	Goods sold For cash	20,000 + 80,000 = 20,000 80,000 55,000 (40,000) 15,000
4.	Withdrew cash for personal use	75,000 + 40,000 = 20,000 95,000 (10,000) (10,000)
5.	Rent Outstanding	65,000 + 40,000 = 20,000 85,000 2,000
	New Equation	65,000 + 40,000 = 20,000 + 2,000 83,000

Assets = Liabilities + capital

(Cash +Stock) = (Creditor +Outstanding Rent) + capital

(65,000+40,000) = (20,000+2,000) + 83,000

1, 05,000 = 1, 05,000

Q14. Prepare Accounting Equation from the following:

Started business with cash rs. 1,00,000.
Purchased goods for cash rs. 20,000 and on credit rs. 30,000.
Sold goods for cash costing rs. 10,000 and on credit costing rs.15, 000 both at a profit of 20%.
Paid salaries rs. 8,000.

Ans –

S.No.	Transactions	Assets = Liabilities + Capital Cash + Stock + Debtors = (Creditor )
1.	started business with cash	1,00,000 = 1,00,000
2.	Purchased goods for cash and on credit	1,00,000 = 1,00,000 (20,000) + 50,000 = 30,000
3.	Good sold for cash	80,000 + 50,000 = 30,000 + 1,00,000 12,000 + (25,000) + 18,000 = 5,000
4.	Salary paid	92,000 + 25,000 + 18,000 = 30,000 + 1,05,000 (8,000) = (8,000)
	New Equation	84,000 + 25,000 + 18,000 = 30,000 + 97,000

Assets = Liabilities + capital

(Cash +Stock+Debtors) = Creditor + capital

(84,000+25,000+18,000) = 30,000 + 97,000

1, 27,000 = 1, 27,000

Q15. Show an Accounting Equation for the following transaction:

D.Mahapatra commenced business with cash rs. 50,000 and rs. 1, 00,000 by cheque; goods rs. 60,000; machinery rs.1, 00,000 and furniture rs. 50,000.
1/3^rd of the above goods sold at a profit of 10% on cost and half of the payment is received in cash.
Depreciation on machinery provided @ 10%.
Cash withdraw for personal use rs. 10,000.
Interest on drawing charged @ 5%.
Goods sold to gupta for rs.10, 000 and received a bill receivable for the same amount for 3 months.
Received rs. 10,000 from gupta against the Bill Receivable on its maturity.

Ans –

S.No	Transactions	Assets = liabilities +capital Cash + Bank + Stock + Machinery + Furniture+ Debtor + Bill = Receivable
1.	Started business with cash Bank Stock Machinery Furniture	50,000 1,50,000 1,00,000 60,000 60,000 1,00,000 1,00,000 50,000 50,000
2.	1/3^rd of goods sold at a profit of 10%on cost and half of amount was received in cash	50,000 +1,00,000 + 60,000 + 1,00,000 + 50,000 = 3,60,000 11,000 (20,000) 11,000 2,000
3.	Machinery Depreciation	61,000 +1,00,000 + 40,000 + 1,00,000 + 50,000 + 11,000 = 3,62,000 (10,000) (10,000)
4.	Drawing	61,000 +1,00,000 + 40,000 + 90,000 + 50,000 + 11,000 = 3,52,000 (10,000) (10,000)
5.	Interest on Drawing charge	51,000 +1,00,000 + 40,000 + 90,000 + 50,000 + 11,000 = 3,42,000 (500) 500
6.	Good sold to gupta and Bill Receivable on the same amount	51,000 +1,00,000 + 40,000 + 90,000 + 50,000 + 11,000 = 3,42,000 (10,000) 10,000
7.	Furniture Purchased on credit	51,000 +1,00,000 + 30,000 + 90,000 + 50,000 + 11,000 + 10,000 = 3,42,000 10,000 (10,000)
	New Equation	61,000 +1,00,000 +30,000 + 90,000 + 50,000 + 11,000 + NIL = 3,42,000

Assets = Liabilities + capital

(Cash +Bank+Stock+Machinery+ = Creditor + capital

Furniture+Debtors+Bill receivable)

(61,000+1, 00,000+30,000+90,000 = 3, 42,000

+50,000+11,000)

3, 42,000 = 3, 42,000

Q16. Show an Accounting Equation on the basis of the following transaction:

Sunil started business with cash 1,50,000
Opened a Bank Account by depositing rs. 25,000 out of cash
He sold his personal car for rs. 50,000 and depositing the amount in firm’s Bank Account.
He purchased a building and furniture for 1,00,000
He purchased goods from Ram on credit 50,000
He paid cartage 500
He sold to Shyam on credit goods costing rs. 6,000 for 9,000
Received rent from tenants 1,000
Received security deposit from tenants 1,500
Purchased stationery for cash 100
Invested in shares (personal) 50,000
Received interest in cash 200
Introduced fresh capital 25,000
Goods destroyed by fire 500

Ans –

S.No	Transactions	Assets = Liabilities + Capital Cash + Bank + Building + Stock + Debtors = Creditors + Security + Capital Furniture Deposit
1	Sunil Started Business with cash	1,50,000 + 1,50,000
2	Bank Account open and depositing from cash	1,50,000 + 1,50,000 (25,000) 25,000
3	Personal car sold and depositing amount into bank	1,25,000 + 25,000 + 1,50,000 50,000 + 50,000
4	Purchased Building and furniture	1,25,000 + 75,000 + 2,00,000 (1,00,000) + 1,00,000
5	Goods purchased from ram on credit mode	25,000 + 75,000 + 1,00,000 + 2,00,000 50,000 = 50,000
6	Cartage paid	25,000 + 75,000 + 1,00,000 + 50,000 = 50,000 + 2,00,000 (500) = 500
7	Goods sold to shyam on credit	24,500 + 75,000 + 1,00,000 + 50,000 = 50,000 + 1,99,500 (6,000) + 9,000 = + 3,000
8	Rent Received from tenants	24,500 +75,000 + 1,00,000 + 44,000 + 9,000 = 50,000 + 2,02,500 1,000 = + 1,000
9	Security deposit Received from tenants	25,500 +75,000 +1,00,000 +44,000 + 9,000 = 50,000 + 2,03,500 1,500 = 1,500
10	Stationary Purchased for cash	27,000 +75,000 +1,00,000 +44,000 + 9,000 = 50,000 + 1,500 + 2,03,500 (100) = (100)
11	Investment in Shares for personal use	26,900 +75,000 +1,00,000 +44,000 + 9,000 = 50,000 + 1,500 + 2,03,400 (50,000) (50,000)
12	Interest received in cash	26,900 +25,000 +1,00,000 + 44,000 + 9,000 = 50,000 + 1,500 + 1,53,400 200 = 200
13	Introduced Fresh capital	27,100 +25,000 +1,00,000 +44,000 + 9,000 = 50,000 + 1,500 + 1,53,600 25,000 = 25,000
14	Goods Destroyed by fire	52,100 +25,000 +1,00,000 +44,000 + 9,000 = 50,000 + 1,500 + 1,78,600 (500) (500)
		52,100 +25,000 +1,00,000 + 43,500 + 9,000 = 50,000 + 1,500 + 1,78,100

Assets = Liabilities + capital

(Cash +Bank+Building& Furniture = (Creditor + Security Deposit) + capital

+Stock+Debtors)

(52,100+25,000+1, 00,000 = (50,000+1,500) + 1, 78,100

+43,500+9,000)

2, 29,600 = 51,500 + 1, 78,100

2, 29,600 = 2, 29,600

Q17. If the capital of a business is rs. 3, 00,000 and liabilities are rs. 50,000, loss rs. 70,000 calculate the total assets of the business.

Ans –

Total Assets	=	(Capital + Liabilities) – Loss
	=	(3,00,000 + 50,000) – 70,000
	=	2,80,000

Total Assets will be RS. 2, 80,000

Q18. If total assets of a business are rs. 1, 30,000 and net worth is rs. 80,000 calculate the creditors.

Ans.

Total Creditors	=	Total Assets – Net Worth
	=	1,30,000 – 80,000
	=	50,000

Total Assets will be RS. 50,000

Q19. A commenced his cloth business on 1^st April, 2023 with a capital of rs. 30,000. On 31^st March 2024, his assets were worth rs. 50, 000 and liabilities of rs. 10,000. Find out his closing capital and profit earned during the year.

Ans.

Closing Capital	=	Total Assets – Total Liabilities
	=	50,000 – 10,000
	=	40,000

Net Profit	=	Closing Capital – Opening Capital
	=	40,000 – 30,000
	=	10,000

Net Profit Will Be RS. 10,000

Q20. Calculate the total assets if:

Capital is rs. 40,000.
Creditors are rs. 25,000.
Revenue during the period is rs. 50,000.
Expenses during the period are rs. 40,000.

Ans –

Total Assets	=	Opening Capital + Revenue during the year – Expenses during the year + Creditor
	=	40,000 + 50,000 – 40,000 + 25,000
	=	75,000

Total Assets Will Be RS. 75,000

Q21. (A) Gurman had a capital of rs. 75,000 on 1^st April, 2023. He had also goods amounting to rs. 15,000 which he had purchased on credit and the payment had not been made. Find out the value of the total assets of the business.

(B) After a period of one month, he came to know that he had suffered a loss of rs. 1,700. He withdrew Rs 800 for his personal use. Find out his capital and assets of the business.

Ans –

(a)	Total Assets	=	Capital + Creditor
		=	75,000 + 15,000
		=	90,000
(b)	Capital After One Month	=	Capital – Loss – Drawings
		=	75,000 – 1,700 – 800
		=	72,500
	Assets After One Month	=	Capital After One Month + Liabilities
		=	72,500 + 15,000
		=	87,500

Q22. (A) Mohan started a business on 1^st April, 2023 with a capital of rs. 10,000 and borrowed rs. 3000 from a friend. He earned a profit of rs. 5,000 during the year ended 31^st March, 2023 and withdrew cash rs. 4,000 for personal use. What is his capital on 31^st March, 2024?

(B) Mahesh Started a business with a capital of rs. 15,000 on 1^st April, 2020. During the year, he made a profit of rs. 3,000. He owes rs 2,500 to suppliers of goods. What is the total of assets in his business on 31^st March, 2024?

Ans –

(a)	Closing Capital	=	Opening Capital + Profit – Drawing
		=	10,000 + 5,000 – 4,000
		=	11,000
(b)	Total Assets on 31^st March 21	=	Opening Capital + Profit + Creditors
		=	15,000 + 3,000 + 25,00
		=	20,500

Total Assets on 31^st March 21 = 20,500

Q23. On 31^st March, 2024, the total assets and external liabilities were rs. 2, 00,000 and rs. 6,000 respectively. During the year, the proprietor had introduced capital of rs. 20,000 and withdrawn rs. 12,000 for personal use. He made a profit of rs. 20,000 during the year. Calculate the capital as on 1^st April, 2023.

Ans –

(a)	Closing Capital	=	Assets – Liabilities
		=	2,00,000 – 6,000
		=	1,94,000
(b)	Opening Capital	=	Closing Capital – Opening Capital – Further Capital introduce + Drawings
		=	1,94,000 – 20,000 – 20,000 + 12,000
		=	1,66,000

Capital as on March 31^st, 2024 = 1, 94,000

Capital As On April 1^st 2020 = 1, 66,000

Q24. Mohan started a business on 1^st April, 2023 with a capital of rs. 25,000 and a loan of rs. 12,500 borrowed from Shyam. During 2023-24, he had introduced additional capital of 12,500 and had withdrawn rs. 75, 000 for personal use. On 31^st March, 2024, his assets were 75,000. Find out his capital as on 31^st March, 2024 and profit made or loss incurred during the year 2023-24

Ans –

(a)	Closing Capital	=	Assets – Liabilities
		=	75,000 – 12,500
		=	62,500
(b)	Profit	=	Closing Capital – Opening Capital – Further capital introduce + Drawings
		=	62,500 – 25,000 – 12,500 + 7,500
		=	32,500

Profit during the Year 2023-24 = 32,500

Q25. Calculate the Amount Of external Equities as on 31^st March, 2024 in the following cases:

On 31^st March, 2024 total assets and capital were rs. 15, 00,000 and rs. 10, 50,000 respectively.
On 1^st April, 2023, Mukesh Started business with a capital of 3, 00,000 and a loan of rs. 3, 00,000 borrowed from a friend. During the year, he earned a profit of rs. 1, 50,000. On 31^st March, 2024, the total assets were rs. 15,00,000
On 1^st April, 2023, Ramesh started business with a capital of rs. 3, 00,000 and a loan of rs. 3, 00,000 borrowed from a fixed. During the year, he earned a profit of rs. 1, 50,000, introduced an additional capital of rs. 1, 80,000 and had withdrawn rs. 90,000 for his personal use. On 31^st March, 2024 total assets were rs. 15,00,000.

Ans –

Liabilities = Assets – Capital

= 15, 00,000 – 10, 50,000

= 4, 50,000

Closing Capital = Opening Capital + Additional Capital + Profit – Drawings

= 3, 00,000 + 0 + 1, 50,000 – 0

= 4, 50,000

Liabilities = Assets – Capital

= 15, 00,000 – 4, 50,000

= 10, 50,000

Closing Capital = Opening Capital + Additional Capital + Profit – Drawings

= 3, 00,000, + 1, 80,000 + 1, 50,000 – 90,000

= 5, 40,000

Liabilities = Assets – Capital

= 15, 00,000 – 5, 40,000

= 9, 60,000

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