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 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
Particulars |
Assets |
= |
Capital |
+ |
Liabilities |
||||||||
|
Cash |
+ |
Stock |
+ |
Bank |
+ |
Invest |
= |
Capital ± |
|
Loan |
||
a |
Business started |
50,000 |
+ |
125,000 |
+ |
0 |
+ |
0 |
= |
175,000 |
|
+ |
0 |
|
First equation |
50,000 |
+ |
125,000 |
+ |
0 |
+ |
0 |
= |
175,000 |
|
+ |
0 |
b |
Loan taken from Thapa |
0 |
|
0 |
|
100,000 |
|
0 |
|
0 |
|
|
100,000 |
|
New equation |
50,000 |
+ |
125,000 |
+ |
100,000 |
+ |
0 |
= |
175,000 |
|
+ |
100,000 |
c |
Loan given to Ashok |
(5,000) |
|
0 |
|
0 |
|
5,000 |
|
0 |
|
|
0 |
|
New equation |
45,000 |
+ |
125,000 |
+ |
100,000 |
+ |
5,000 |
= |
175,000 |
|
+ |
100,000 |
d |
Invested in 14% FD |
0 |
|
0 |
|
(55,000) |
|
55,000 |
|
0 |
|
|
0 |
|
New equation |
45,000 |
+ |
125,000 |
+ |
45,000 |
+ |
60,000 |
= |
175,000 |
|
+ |
100,000 |
e |
Interest paid on loan |
0 |
|
0 |
|
(667) |
|
0 |
|
(667) |
int |
|
0 |
|
Final equation |
45,000 |
+ |
125,000 |
+ |
44,333 |
+ |
60,000 |
= |
174,333 |
|
+ |
100,000 |
#######
Click on link for YouTube videos topic wise : |
|
Accounting Equation |
|
Basic Journal Entries in Nepali |
|
Basic Journal Entries |
|
Journal Entry and Ledger |
|
Ledger Account |
|
Subsidiary Book |
|
Cash Book |
|
Trial Balance and Adjusted Trial Balance |
|
Bank Reconciliation Statement (BRS) |
|
Depreciation |
|
Click on link for YouTube videos chapter wise: |
|
Financial Accounting and Analysis (All videos) |
|
Accounting Process |
|
Accounting for Long Lived Assets |
|
Analysis of Financial Statement |
#####
Alternatively,
Accounting Equation
Particulars |
Assets |
= |
Capital |
+ |
Liabilities |
||||
a |
Business started |
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
###########
PROBLEM AND ANSWERS |
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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