Accounting Equation 2

Accounting Equation 2

Q 1: Plant = 50,000; Goods = 25000; Cash = 20000; borrowings = 35000; Capital = 25000. Show the accounting equation.

Answer: Capital (25,000) + Profit (35,000) + Borrowings (Creditors = 35,000) = Cash (20,000) + Goods (25,000) + Plant (50,000)

Q 2: Capital = 50,000; Assets = 100,000. Equity = 80,000; find liabilities.

Answer: Liability + Equity = Asset. Hence, Liability is 20,000.

Q 3: Started business with cash =50,000; Purchased stock of goods on credit from XY ltd. = 30,000; Sold all stock for 50,000. Find the Equity at the end of the month.

Answer: 70,000

Balance Sheet			IS		CFS
Source of Funds	Opening BS	Closing BS	Income		Receipts
Capital	50000	50000			Opening Cash Balance	50000
Retained Profit	0	20000	Goods Sold	50000	Goods Sold	50000
Creditor XY	30000	30000
Total	80000	100000	Total	50000	Total	100000
Application of Funds			Expense		Payment
Cash in Hand	50000	100000
Goods	30000	0	COGS	30000
Total	80000	100000	Total	30000	Total	0
			Profit	20000	CIH (Cash in Hand)	100000

Q 4: Net-worth = 50,000; Cash =50,000; Total Assets = 200,000; Find the debt.

Answer: Net-Worth = Equity = 50,000; Asset = 200,000. Hence, Debt is 200,000 – 50,000 = 150,000

Q 5: Profit of A ltd for the period = 50,000; Sales =250,000; Salaries for the period = 25,000; Salaries paid = 20,000; Find cost of goods sold assuming there are no other expenses.

Answer: COGS = 175,000

IS
Income
Sales	250000
Total	250000
Expense
Salary	25000
COGS	175000
Total	200000
Profit	50000

Q 6: Net-worth = Negative 50,000; Cash =50,000; Total Assets = 200,000; Find debt.

Answer: Net Worth = Equity = -50,000; Assets = 200,000. Hence Debt is 200,000 – (-50,000) = 250,000.

Balance Sheet Practice Question

Balance Sheet

Q 1: As on 1st April Assets = 100,000; Equity = 75,000; during the year the company purchased assets for 50,000 for cash. Find the value of the total liabilities to be shown in the balance sheet as at the end of the year.

Answer: Assets remains the same as 100,000 (One form of asset changed to other form which is cash here). Hence, Liability is Assets – Equity = 100,000-75,000 = 25,000

Q 2: Opening Cash in hand =40,000; Credit Sales = 50,000; Cash sales =25,000; Expenses for the period = 30,000; Expenses paid = 10,000; Find Closing cash in hand.

Answer: Closing Cash = Opening Cash + Cash Sales – Expenses Paid = 40,000 + 25,000 - 10,000 = 55,000

Q 3: Rent per month =5000; Accounting period =3 months. Rent paid =5000. How much will appear in the balance sheet?

Answer: Rent Payable / Outstanding Rent will appear on Balance sheet (Rent for the accounting period – Rent Paid for the accounting period = 15,000 – 5,000 = 10,000)

Q 4: Opening debtors = 50,000; Sold goods for cash =50,000; Collections from the debtors = 30,000; Bad debts written off = 10,000. Find debtors to be shown in the balance sheet.

Answer: Closing Debtors = Opening Debtor - Collection of Debtors – Bad Debts Written Off = 50,000 - 30,000 – 10,000 = 10,000

Q 5: As on 1st April Assets = 100,000; Loan = 25,000. During the year the company issued 10,000 shares of 2 at 10. Company used the entire money for purchasing computers. Find the equity immediately after the issue of shares.

Answer: Revised Equity = Old Equity + New Equity = (100,000 – 25,000) + (10,000*10) = 75,000 + 100,000 = 175,000. (Here, Face Value of Share is 10 and not 2. Company issued the share in market at premium)

Sample Question

Question – Prepare Financial Statement for the following –

BS	Financial Transaction - Year 1
Opening	Started business with cash on 1st April 2010	250,000
Opening	Availed 9% loan on 1st October 2010 (6 months Interest)	75,000
Opening	Interest payable on 31st March
Closing	Purchased shares of Z ltd	100,000
Closing	Purchased stock on credit from M	180,000
Closing	purchased stock for cash	30,000
Closing	Sold entire stock to X ( 40% on credit)	330,000
Closing	Salary per month is 5000; salary is payable at the beginning of the next month
	11 months, paid (April 1 won’t come in the BS)
Closing	Rent per month	4,000
Closing	Rent paid for two years	96,000
Closing	Paid part of the creditors (M)by transferring the Z shares	60,000
Closing	Gave loan to Mr. Y ( interest rate: 12%) on 1st January2011 - 3 months, interest received in cash (assumption)	50,000
	Interest receivable on 31st March every year
Closing	Tax on Profit	30%
Closing	Declared 20% Dividend on 20th March to be paid on 5th April
	Dividend is payable as it is paid after financial year, but will come in IS as it is accrued within the financial year

Answer –

Balance Sheet			IS		CFS
Source of Funds	Opening BS	Closing BS	Income		Receipts
Capital	250000	250000			Opening Cash Balance	325000
Retained Profit		-39412.5
Loan (9%)	75000	75000	Sale of Stock	330000	Sale of Stock	198000
			Int of Loan (12%)	1500	Int of Loan Paid	1500
Dividend Payable		50000
Creditor M		120000
Total	325000	455587.5	Total	331500	Total	524500
Application of Funds			Expense		Payment
Cash in Hand	325000	185587.5
			Int on Loan	3375	Int on Loan Paid	3375
Shares Z		40000			Shares Z	100000
Stock / Goods		0	COGS	210000	Stock / Goods	30000
Debtor X		132000	Salary	55000	Salary Paid	55000
Advance Rent		48000	Rent	48000	Rent Paid	96000
Loan (12%)		50000			Loan (12%)	50000
			Tax	4537.5	Tax Paid	4537.5
			Dividend	50000
Total	325000	455587.5	Total	370912.5	Total	338912.5
			Profit	-39412.5	CIH (Cash in Hand)	185587.5