Accounting Equation Problem and Solution Loan and Investment

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

 

LOAN TAKEN, LOAN GIVEN OR INVESTMENT

Loan taken

When capital and cash are not sufficient, loan should be taken.

This loan may be for goods purchase, assets purchase or to pay operating expenses.

To take loan, security should be deposited.

Generally, there are two types of loan.

They are short-term loan and long-term loan.

Short-term loan is for maximum one year but long-term loan is for more than one year.

Interest must be paid on loan.

 

Loan given or investment

Loan given is also known investment.

Excess money or profits are invested into other company.

Sometimes, loan is given believable person.

Generally, these investments are made for two reasons.

First is to earn income and second to control-over another company.

Interest will be received on investment.

 

PROBLEM:

Bhairav Traders has following data:

(a) Business started with cash Rs 50,000 and stock Rs 125,000.

(b) 8% Loan taken from Everest Bank by opening bank account Rs 100,000.

(c) Life insurance premium paid Rs 11,500.

(d) Loan given to Ashok Rs 5,000.

(e) Invested in 10% Fixed Deposit 55,000 by cheque.

(f) Interest deducted by bank (interest paid on loan) Rs 667 .

Required: Accounting equation

[Answer: Assets = 274,333; Capital = 174,333; Liabilities = 100,000]

 

SOLUTION:

                                                              Accounting Equation

Particulars		Assets		=	Capital		+	Liabilities
a	Business started with cash	50,000 125,000	cash stock	=	175,000		+	0
	Beginning equation	175,000		=	175,000		+	0
b	Loan taken from Mr Thapa	+100,000	bank		0			+100,000	loan
	New equation	275,000		=	175,000		+	100,000
c	Loan given to Ashok	+5,000 –5,000	invest cash		0			0
	New equation	275,000		=	175,000		+	100,000
d	Invested in 10% Fixed Deposit	+55,000 −55,000	invest bank		0			0
	New equation	275,000		=	175,000		+	100,000
e	Interest paid on loan	–667	bank		–667	exp		0
Final equation		274,333		=	174,333		+	100,000

Therefore, Assets = Rs 390,000; Capital = Rs 90,000; Liabilities = Rs 300,000

 

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ACCOUNTING EQUATION  http://tiny.cc/c89jkz

BASIC JOURNAL ENTRIES IN NEPALI http://tiny.cc/uaakkz

BASIC JOURNAL ENTRIES http://tiny.cc/8aakkz

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SUBSIDIARY BOOK http://tiny.cc/399jkz

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TRIAL BALANCE & ADJUSTED TRIAL BALANCE http://tiny.cc/c59jkz

BANK RECONCILIATION STATEMENT (BRS) http://tiny.cc/q59jkz

DEPRECIATION http://tiny.cc/ugakkz

FINAL ACCOUNT: CLASS 11 http://tiny.cc/y89jkz

ADJUSTMENT IN FINAL ACCOUNT http://tiny.cc/keakkz

CAPITAL AND REVENUE http://tiny.cc/peakkz

SINGLE ENTRY SYSTEM http://tiny.cc/n19jkz

NON-PROFIT ORGANIZATION (NON-TRADING CONCERN http://tiny.cc/j09jkz

GOVERNMENT ACCOUNTING http://tiny.cc/hcakkz

GOSWARA VOUCHER (JOURNAL VOUCHER) http://tiny.cc/hcakkz

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PROBLEM AND ANSWERS

PROBLEM: 1

HK Investment has following extracted data:

(a) Business started with office equipment Rs 300,000.

(b) 10% Loan taken from City Bank by opening account Rs 275,000.

(c) Loan given to Sunil Rs 150,000 @ 18% interest p.a.

(d) Equity shares purchased of Rs 45,000.

(e) Cheque issued to SB Cooperating for monthly saving Rs 2,500.

(f) Interest paid on loan Rs 2,292.

(g) Interest received from Sunil Rs 2,250.

Required: Accounting equation

[Answer:  Assets = 574,958; Capital = 299,958; Liabilities = 275,000]

 

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