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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

Kaveri Traders Ltd. has the following balances at year end: Assets: building Rs 12,00,000, stock Rs 3,00,000, debtors Rs 2,50,000, cash Rs 50,000. Liabilities: bank loan repayable in 5 years Rs 4,00,000, creditors Rs 1,80,000, outstanding expenses Rs 20,000. Under the Framework, the residual interest (equity) in the entity is:

Equity is Rs 12,00,000. The Framework defines equity as the residual interest in assets after deducting all liabilities. Assets total Rs 18,00,000 and liabilities total Rs 6,00,000, so the difference is Rs 12,00,000.

  1. ARs 12,00,000Correct
  2. BRs 11,00,000
  3. CRs 13,00,000
  4. DRs 9,50,000

Explanation

Total assets = 12,00,000+3,00,000+2,50,000+50,000 = 18,00,000. Total liabilities = 4,00,000+1,80,000+20,000 = 6,00,000. Equity = 18,00,000 - 6,00,000 = 12,00,000. Rs 11,00,000 would wrongly arise by ignoring the cash or treating one item incorrectly; Rs 13,00,000 results from omitting outstanding expenses and part of the other liabilities.

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