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CMA Foundation · Fundamentals of Financial and Cost Accounting · Journal and Ledger

A firm records these transactions: (i) purchased machinery for Rs 60,000, paying Rs 25,000 in cash and the balance on credit; (ii) paid Rs 5,000 rent in cash; (iii) received Rs 8,000 commission in cash. By how much do total assets change, and how do liabilities change, overall?

Assets increase by Rs 38,000 and liabilities by Rs 35,000. Machinery adds 60,000 while net cash falls by 22,000, giving 38,000. The unpaid machinery balance is a 35,000 liability, and the remaining 3,000 is net income increasing capital.

  1. AAssets increase by Rs 38,000; liabilities increase by Rs 35,000Correct
  2. BAssets increase by Rs 73,000; liabilities increase by Rs 35,000
  3. CAssets increase by Rs 38,000; liabilities increase by Rs 60,000
  4. DAssets increase by Rs 35,000; liabilities increase by Rs 35,000

Explanation

Machinery +60,000; cash -25,000 -5,000 +8,000 = -22,000; net assets +38,000. Liabilities rise by the credit of Rs 35,000. Check: capital change = -5,000 + 8,000 = +3,000, and 38,000 = 35,000 + 3,000. Option D ignores the net income effect.

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