Expanded Accounting Equation: Loan and Investment

Loan Taken, Loan Given, Investment in Expanded Accounting Equation  

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.

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

PROBLEM: 8

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: Expanded accounting equation

[Answer: Assets = 45,000; 125,000; 44,333; 60,000;

Capital = 174,333; Liabilities = 100,000]

SOLUTION:

Accounting Equation

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Alternatively,

Accounting Equation

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

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

PROBLEM: 8A              loan and investment

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: Expanded accounting equation

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

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