Expanded Accounting Equation: Asset Purchased, Asset Sold, Depreciation

Assets Purchased, Assets Sold, Depreciation in Expanded Accounting Equation

Asset purchased

Assets are the economic resources reported in the balance sheet.

Assets represent probable future economic benefits.

The values of tangible assets are also known fixed assets.

They have their physical substance.

Asset sold

After using fixed asset, it becomes old.

Sometime it may be useless or outdated.

In this condition, asset should be sold.

While selling assets, there may be profit or loss.

Profit on sales of assets is added with capital but loss is deducted.

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

PROBLEM: 6

BRS Book House has following extracted information in August:

a.     Business started with cash Rs 200,000, stock Rs 40,000 and furniture Rs 25,000.

b.    Computer set purchased for office worth Rs 22,000.

c.     Printer purchased for Rs 10,000.

d.    Old furniture sold costing Rs 10,000 for Rs 6,000.

e.     Goods sold costing Rs 8,000 for Rs 9,000.

f.       Depreciation charge Rs 400, Rs 330 and Rs 115 on furniture, computer and printer respectively.

Required: Expanded accounting equation

[Answer: Assets = 185,000; 22,000; 24,600; 19,670; 9,885;

Owner’s equity = Rs 261,155; Liabilities Nil]

SOLUTION:

Explanation:      

(a) Cash, stock and furniture increase assets; it is also total of capital. 

(b) Computer purchased increases assets but decreases cash.

(c) Printer purchased increases assets but decreases cash.

(d) Old furniture sold 10,000 decreases furniture; 6,000 increases cash and loss 4,000 decreases capital.

(e) Goods sold 8,000 decreases stock; 6,000 increases cash and profit 1,000 increases capital.

(f) Depreciation decreases value of asset; it is deducted from related asset; it also deducted from capital in sole proprietorship.

Accounting Equation

Keep in Mind (KIM)

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

PROBLEM: 6A

BRS Book House has following extracted information:

Sep 1, Opening balance: cash Rs 185,000; stock Rs 22,000; furniture Rs 25,000; computer Rs 20,000; printer Rs 10,000 and capital Rs 262,000.

Sep 3, Goods purchased in cash Rs 45,300.

Sep 10, Computer exchanged with laptop by paying cash Rs 31,500.

Sep 20, Unsuitable book rack (furniture) costing Rs 6,200 is sold for Rs 3,000.

Sep 25, Book rack (furniture) purchased on credit Rs 11,700.

Sep 26, Goods sold in cash costing Rs 37,250 for Rs 69,720 recorded from sales ledger.

Sep 30, Commission received Rs 875.

Required: Expanded accounting equation

[Answer:  Assets = 171,675; 30,050; 30,500; 51,500;

Owner’s equity = 282,025; Liabilities = 11,700;

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