Accounting Equation - ACCOUNTING I - For HSC part 1 (ICOM - 1) - SOLVED PAST PAPER QUESTION (KARACHI BOARD) - By Sir Irfan

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ACCOUNTING EQUATION
I.COM-Part 1

By Sir Irfan
Cell# 0347-3643211

Q.1: Define Accounting equation. Also write accounting equation.
Ans: ACCOUNTING EQUATION:
Accounting equation is a track of whether the company's assets equal its liabilities plus the owner's or shareholder's equity.
FORMULA:

Assets = Liabilities + Shareholder's Equity

Q.2: For each of the following determine the underlined missing items: i) The owner's equity of a business entity having assets of Rs.90,000 and liabilities of Rs.50,000.
ii) The revenues of a business entity having expenses of Rs.80,000 and net income of Rs.15,000.
iii) The expenses of a business entity having revenues of Rs.75,000 and net loss of Rs.9,000. [2022RP Q#3(A)]
Ans: SOLUTION:
i) Computation for owner's equity:

Assets = Liabilities + Owner’s Equity

Owner’s equity = Assets - Liabilities
Owner’s equity = 90000 - 50000
Owner’s equity = 40000

ii) Computation for revenues:

Revenue = Expenses + Profit

Revenue = 80000 + 15000
Revenue = 95000

iii) Computation for expenses:

Expenses = Revenue + Loss

Expenses = 75000 + 9000
Expenses = 84000

Q.3: On January 1, 2021 the amount of assets and capital were Rs.80,000 and Rs.70,000 respectively. Find the amount of capital on January 31, 2021 if the assets increased by 30% and liabilities decreased by 25% during a month. [2022RP Q#3(B)]
Ans: SOLUTION:
Computation for Liabilities on January 01, 2021:

Liabilities = Assets - Capital

Liabilities = 80000 - 70000
Liabilities = 10000

Computation for Assets on January 31, 2021:
Assets = 80000 X 130%
Assets = 104000

Computation for Liabilities on January 31, 2021:
Liabilities = 10000 X 75%
Liabilities = 7500

Computation for Capital on January 31, 2021:

Capital = Assets - Liabilities

Capital = 104000 - 7500
Capital = 96500

Q.4: Given below the transactions of Mr. Majid, a sole trader, ignoring amount:
a) Mr. Majid invested cash in business.
b) Purchased merchandise on account.
c) Borrowed cash from bank.
d) Sold merchandise on account at more than cost.
e) Paid salaries expense.
f) Withdrew cash for personal use.
Required:
Indicate the effects of the above transactions on the elements of accounting equation
“+" for increase, “-" for decrease and "0" for no change.
[2021RP Q#2]
Ans: SOLUTION:

Q.5: For each of the following, determine the underlined missing items:
i. The Liabilities of a business having assets of Rs. 900,000 and capital of Rs. 480,000.
ii. The Capital of a business having Assets of Rs. 1,220,000 and Liabilities of Rs. 420,000.
iii. The Expenses of a business having Revenues of Rs. 440,000 and Net income of Rs. 160,000.
iv. The Revenues of a business having Expenses of Rs. 760,000 and Net Loss of Rs. 130,000. [2019RP Q#2(B)]
Ans: SOLUTION:
i) Computation for Liabilities:

Assets= Liabilities + Owner’s Equity

Liabilities = Assets - Capital
Liabilities = 900000 - 480000
Liabilities = 420000

ii) Computation for Capital:

Assets = Liabilities + Owner’s Equity

Capital = Assets - Liabilities
Capital = 1220000 - 420000
Capital = 800000

iii) Computation for Expenses:

Expenses = Revenue - Net Income

Expenses = 440000 - 160000
Expenses = 280000

iv) Computation for Revenues:

Revenues = Expenses - Net Loss

Revenues = 760000 - 130000
Revenues = 630000

Q.6: Transactions given below relate to the business of Majeed. For each of the transactions, you are required to indicate the effects son the elements of Accounting Equation using (+) for increase and (-) for decrease, (0) for no change:
i. Sold land for cash at a price in excess of cost.
ii. Borrowed money from a bank.
iii. Returned some of the equipment previously purchased on credit.
iv. Received commission in cash for services rendered. [2019RP Q#2(A)]
Ans: SOLUTION:

Q.7: For each of the following, determine the underlined missing items:
(i) The Liabilities of a business entity, having Assets of Rs.550,000 and owner's equity Rs.400,000.
(ii) The Owner's equity of a business entity, having Assets of Rs.600,000 and Liabilities Rs. 120,000.
(iii) The Expenses of a business entity, having Revenue Rs.210,000 and net Loss Rs.25,000. [2018RP Q#2(A)]
Ans: Answer Key:

1. Liabilities = 150000
2. Owner's equity = 480000
3. Expenses = 235000

Q.8: State the rules of Debit and Credit for the following:
i. Increase in owner's capital.
ii. Decrease in office supplies.
iii. Decrease in note payable.
iv. Increase in Bank overdraft.
v. Increase in office furniture.
vi. Decrease in owner's capital.
[2017RP Q#2(A)]
Ans: SOLUTION:

S.NO.	Particulars	Rules (Debit / Credit)
1.	Increase in owner's capital.	Credit
2.	Decrease in office supplies.	Credit
3.	Decrease in note payable.	Debit
4.	Increase in Bank overdraft.	Credit
5.	Increase in office furniture.	Debit
6.	Decrease in owner's capital.	Debit

Q.9: Write the effect of the following transactions on accounting equation- Increase will be shown as (+) decrease as (-) and no effect as (0): [2017RP Q#2(B)]
Ans: SOLUTION:

Q.10: For each of the following determine the underlined missing item.
i. The liabilities of a business entity having assets of Rs.400,000 and owner's equity of Rs. 180,000
ii. The assets of a business entity having liabilities of Rs.100,000 and owner's equity of Rs.200,000
iii. The Owner's equity of a business entity having assets of Rs.200,000 and liabilities of Rs.70,000
iv. The revenues of a business entity having expenses of Rs. 120,000 and Net Income of Rs.30,000
v. The expenses of a business entity having revenue of Rs.180,000 and Net loss of Rs.16,000
vi. Sales revenue of a business entity having cost of goods sold Rs.210,000 and gross loss of Rs.10,000. [2015RP Q#2]
Ans: Answer Key:

1. Liabilities = 220000
2. Assets = 300000
3. owner's equity = 130000
4. Revenues = 150000
5. Expenses = 196000
6. Revenue = 200000

Q.11: Determine the underlined missing items for each of the following:
(i) The assets of business entity having liabilities of Rs.60,000 and owner's equity Rs.120,000.
(ii) The owner's equity of business entity having assets of Rs.600,000 and liabilities Rs.250,000.
(iii) The liabilities of business entity having assets of Rs.310,000 and owner's equity Rs.70,000. [2008RP Q#1(C)]
Ans: Answer Key:

1. Assets =180000
2. Owner's equity = 350000
3. Liabilities = 240000

Q.12: a) On July 1, Basit began operating a business. After each of the five transactions, the accounting equation for the business showed the following balances. Analyze the equation and describe each of the five transactions with their amounts.

b) During the month of September, AB Company had cash receipts of Rs.36,000 and cash payments of Rs.40,500. The September 30 cash balance was Rs.8,000; calculate the August 31 cash balance
c) Aqeel, the owner of a business had a capital account balance of Rs.230,000 on May 31 and Rs.296,000 on June 30. His net income for the month June was Rs.72,000; calculate withdrawals during June from the business.
d) The ending balance of an owner's equity is Rs.42,000. During the year the owner contributed Rs.12,000 and withdrew Rs.8,000. If the firm had Rs.16,000 net incomes for the year, what was the owner's equity at the beginning of the following?
(i) Rs.38,000 (ii) Rs.22,000 (iii) Rs.42,000 (iv) Rs.46,000. [2002r Q#1(A)]
Ans: SOLUTION:
Case(a)
(i) Mr. Basit invested cash in the business Rs.30,000.
(ii) Purchased office supplies for Rs.800 on cash and for Rs.1,200 on account.
(iii) Purchased office furniture for cash Rs.18,000.
(iv) Services provided to the customers on account Rs.2,400.
(v) Purchased office supplies for cash Rs.1,400 and office furniture for cash Rs.1,600

Case(b)

Cash balance on August 31st
Cash at end	8000
Add: Cash payments during the period	40500
Total cash available	48500
Less: Cash receipts during the period	(36000)
Cash at August 31st	12500

Case(c)

Drawings during the month
Capital at May 31st	230000
Add: Net profit	72000
	302000
Less: Capital at June 30th	(296000)
Drawings	6000

Case(d)

Owner’s equity at the beginning
Capital at end	42000
Add: Drawing	8000
	50000
Less: Additional investment	(12000)
	38000
Less: Net profit	(16000)
Owner’s equity at the beginning	22000

Q.13: For each of the following determine the underlined missing item:-
1. The Liabilities of a business entity having assets of Rs.400,000 and owner's equity of Rs.180,000.
2. The Assets of business entity having liabilities of Rs.100,000 and owner's equity of Rs.200,000.
3. The Owner's Equity of business having assets of Rs.1600,000 and liabilities of Rs.80,000.
4. The Revenues of business entity having expenses of Rs.120,000 and net income of Rs.30,000.
5. The Expenses of a business entity having revenues of Rs.180.000 and net loss of Rs.16,000. [2002P Q#1(A)]
Ans: Answer Key:

1. Liabilities = 220000
2. Assets = 300000
3. owner's equity = 80000
4. Revenues = 150000
5. Expenses = 196000

Q.14: For each of the following determine the underlined missing item:-
i. The liabilities of a business entity having assets of Rs.200,000 and owner's equity of Rs.90,000.
ii. The assets of a business entity having liabilities of Rs.50,000 and owner's equity of Rs.100,000.
iii. The owner's equity of a business having assets of Rs.80,000 and liabilities of Rs.40,000.
iv. The revenue of a business entity having expenses of Rs.60,000 and net income of Rs.15,000.
v. The expenses of a business entity having revenues of Rs.90,000 and net loss of Rs.8,000. [1993RP Q#1(A)]
Ans: Answer Key:

1. Liabilities = 110000
2. Assets = 150000
3. owner's equity = 40000
4. Revenues = 75000
5. Expenses = 98000

Q.15: Six selected transactions of Fair Traders are given in the balance sheet equation below. The effect of each transaction upon the equation is shown. You are to write a sentence explaining each transaction (i) through (vi). [1992RP Q#1(B)]

Ans: SOLUTION:

1. Cash invested in the business by the owner Rs.50,000.
2. Purchased supplies for cash Rs.1,000.
3. Purchased equipment on account Rs.15,000.
4. Paid cash to creditor Rs.5,000.
5. Returned equipment to the supplier Rs.1,000.
6. Withdrew cash by owner for personal use Rs.40