ACCA Applied Knowledge · Financial Accounting · The main elements of financial statements
Which of the following correctly describes equity under the Conceptual Framework?
Equity is the residual interest in the entity's assets after deducting all its liabilities. It therefore includes share capital, retained earnings and other reserves, and it is not the same as the market value of shares or available cash.
- AThe total of all amounts invested by the owners since the entity was formed
- BThe residual interest in the assets of the entity after deducting all its liabilitiesCorrect
- CThe market value of the entity's shares at the reporting date
- DThe cash and bank balances available to be distributed to owners
Explanation
Equity is the residual interest in assets after deducting liabilities. It includes retained profits and reserves, not just contributed capital, and it is not market value or cash.
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