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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

Kapoor started a business with cash Rs 5,00,000 and goods Rs 1,00,000. He then borrowed Rs 2,00,000 from a bank, bought furniture for Rs 1,50,000 in cash and bought goods on credit for Rs 60,000. Applying the accounting equation, what are the owner's capital and total assets after these transactions?

Capital remains Rs 6,00,000 and total assets are Rs 8,60,000. Cash is Rs 5,50,000, goods Rs 1,60,000 and furniture Rs 1,50,000. Liabilities of Rs 2,60,000 (loan and creditors) plus capital of Rs 6,00,000 equal the assets, satisfying the accounting equation.

  1. ACapital Rs 6,00,000; total assets Rs 8,60,000Correct
  2. BCapital Rs 6,00,000; total assets Rs 8,00,000
  3. CCapital Rs 8,00,000; total assets Rs 8,60,000
  4. DCapital Rs 6,60,000; total assets Rs 9,20,000

Explanation

Capital is Rs 6,00,000 (cash plus goods) and borrowing and credit purchase do not alter it. Cash: 5,00,000 + 2,00,000 - 1,50,000 = 5,50,000. Goods: 1,00,000 + 60,000 = 1,60,000. Furniture 1,50,000. Total assets = 8,60,000. Liabilities = 2,00,000 + 60,000 = 2,60,000; 2,60,000 + 6,00,000 = 8,60,000, so the equation balances.

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