TS Grewal Accountancy Class 11 Solution Chapter 5 Accounting Equation

About this chapter: TS Grewal Accountancy Class 11 Chapter 5 provides details relating to Accounting Equations which are used by various organizations. It is important to understand various accounting equations which are used by organizations to better understand financial statements. It is important for students in Class 11 to understand all the accounting equations as it will help them to gain more marks in exams. Equations should be learned and practiced daily so that they can be really useful in understanding further chapters in this book. This is a very scoring chapter and if the students have practiced all questions given below then they will get higher score in examinations

Question 1. Explain in short the meaning of an Accounting Equation.

Answer  1.

An Accounting Equation is a mathematical expression which shows that the assets and liabilities of a firm are equal. An Accounting Equation is based on the dual aspect concept of accounting meaning; every transaction has two aspects- debit and credit. It holds that for every debit there is a credit of equal amount and vice versa. 

 

Question 2. “Accounting Equation (A=L+C) always holds good under all circumstances.” Explain with the help of two examples.

Answer  2.

“Accounting Equation (A = L + C) always holds good under all circumstances.”

For Example,

(i) Started business with Stock = Rs. 5,500, Capital = Rs. 3,500 and Creditors = Rs. 2,000

Assets = Liabilities + Capital

Stock = Creditors + Capital

Rs. 5,500 = Rs. 2,000 + Rs. 3,500

(ii) Stock taken by the proprietor for private use Rs. 500

Assets = Liabilities + Capital

Stock = Creditors + Capital

(Rs. 5,500 – Rs. 500) = Rs. 2,000 + (Rs. 3,500 – Rs. 500)

Rs. 5,000 = Rs. 2,000 + Rs. 3,000

Rs. 5,000 = Rs. 5,000 

 

Question 3. What is owner’s equity? Give an equation for calculating owner’s equity. Give two examples at least.

Answer  3.

Owner’s Equity means balance standing to the credit of Capital Account of the proprietor. It is the capital investment plus earning minus expenses of the business.

The Equation to calculate Owner’s Equity or Capital = Assets – liabilities

For Example:-

(i) Started Business with Stock = Rs. 2,500, Capital = Rs. 1,500 and Creditors = Rs. 1,000

Assets = Liabilities + Capital

Owner’s Equity = Assets – Creditors

Owner’s Equity = Rs. 2,500 – Rs. 1,000

Owner’s Equity = Rs. 1,500

(ii) If the above example is continued and rent paid Rs. 500, then Owner’s Equity will be:

Owner’s Equity = Capital before rent paid – Rent paid

=Rs. 1,500 – Rs. 500

= Rs. 1000 

 

Question 4. From the following information find the capital of Vijay: Total Assets Rs. 5,00,000; Creditors Rs. 1,00,000; Loan from Bank Rs. 1,50,000.

Answer  4.

Capital of Vijay = Total Assets – Creditors – Loan from Bank

= Rs. 5,00,000 – Rs. 1,00,000 – Rs. 1,50,000

= Rs. 2,50,000 

 

Question 5. If the Capital is Rs. 2,60,000 and Assets are Rs. 5,00,000, what is the amount of liabilities?

Answer  5.

Liabilities = Total Assets – Capital

= Rs. 5,00,000 – Rs. 2,60,000

= Rs. 2,40,000 

 

Question 6. If the Capital is Rs. 1,00,000 and Outside Liabilities are Rs. 2,50,000, find the Total Assets.

Answer  6.

Total Assets = Outside Liabilities + Capital

= Rs. 2,50,000 + Rs. 1,00,000

= Rs. 3,50,000  

 

Question.7. Ram started business on 1^st April, 2020 with a Capital of Rs. 25,000 and a loan of Rs. 12,500. On 31^st March, 2021, his assets were Rs. 50,000. Find his capital as on 31^st March, 2021 and the profit earned during the year.

Answer 7.

Capital of Ram on 31^st March, Current Year= Total Assets – Loan

= Rs. 50,000 – Rs. 12,500

= Rs. 37,500

Profit of Ram for the year ended 31^st March (Current Year)

= Capital on 31^st March (Current year) – Capital on 1^st April (Last Year)

= Rs. 37,500 – Rs. 25,000

= Rs. 12,500

 

Question 8. Calculate total assets if:

Capital is Rs. 2,00,000; Creditors Rs. 50,000; Revenue during the year Rs. 5,00,000; and Expenses during the year Rs. 4,00,000.

Answer 8.

Total Assets = Creditors + Capital

= Creditors + (Capital + Revenue – Expenses)

= Rs. 50,000 + (Rs. 2,00,000 + Rs. 5,00,000 – Rs. 4,00,000)

= Rs. 50,000 + Rs. 3,00,000

= Rs. 3,50,000 

 

Question 9. (a) A starts a business and invests Rs. 50,000 on 1st April, 2020. On 31st March, 2019 his assets are Rs. 65,000 and liabilities are Rs. 6,000. Find out the amount of capital on 31st March,2021 and his profit.

(b) In the above case, if the proprietor had invested Rs. 5,000 as additional capital and withdrawn Rs. 2,000, what will be your answer?

(c) If a had withdrawn from his business Rs. 3,000 for personal use, find out the profit in this case.

Answer 9.

(a) Closing Capital = Assets – Liabilities

= Rs. 65,000 – Rs. 6,000

= Rs. 59,000

Profit = Closing Capital – Opening Capital

= Rs. 59,000 – Rs. 50,000

(b) Profit = Closing Capital – Opening Capital – Additional Capital + Drawings

= Rs. 59,000 – Rs. 50,000 – Rs. 5,000 + Rs. 2,000

= Rs. 6,000

(c) Profit = Closing Capital – Opening Capital + Drawings

= Rs. 59,000 – Rs. 50,000 + Rs. 3,000

= Rs. 12,000

 

Question 10. Determine the missing amounts on the basis of the Accounting Equation:

Answer 10.  

The missing amounts were determined on the basis of the following Accounting Equation:

 

Question 11. The assets of a business on 31st March, 2019 are Rs. 50,000 and its capital is Rs. 35,000. Calculate its liabilities on that date.(Old Question)

Answer  11.

The Liabilities of the firm as on 31^st March of the Current Year = Assets – Capital

= Rs. 50,000 – Rs. 20,000

= Rs. 30,000

 

Practical Problems  --->>

 

Question 1:  What will be effect of the following on the Accounting Equation?

(i) Started business with cash Rs 45,000
(ii) Opened a Bank Account with a deposit of Rs 4,500
(iii) Bought goods from M\s. Sun & Co. For Rs11,200

Answer 1:

Points for Knowledge:-

• In (iii) the name of the seller is given so it will be treated as credit sale. It will create effect on the liability side (creditors) also. 

 

Question 2:  Show the Accounting Equation for the following transactions:

Answer 2:

Points for Knowledge:-

• In (ii) transaction because the name of the seller is given so it will be treated as credit sale. It will create effect on liability side (creditors) also.
• In (iv) Gopinath who is the proprietor of the business takes out Rs.5, 000 from Business. 

 

Question 3:   Prepare an Accounting Equation and Balance Sheet on the following basis:

(i)  Ajeet started business Rs 20,000.
(ii) He purchased furniture for Rs 2,000.
(iii) He paid rent of Rs 200.
(iv) He purchase goods on credit Rs 3,000.
(v) He sold goods (cost price Rs 2,000) for Rs 5,000 on cash. 

Answer 3:

Points of Knowledge:- 

• If the question is silent, we assume that sales and purchases are made in cash mode. 

 

Question 7:  Show the effect of the following transactions on the Accounting Equation:

(i) Started business with cash Rs 50,000.
(ii) Salaries paid Rs 2,000.
(iii) Wages Outstanding Rs 200.
(iv) Interest due but not paid Rs 100.
(v) Rent paid in advance Rs 150. 

Answer 7:

 

Points for Knowledge:-

• Outstanding expenses (iii) are always liability for a business.
• Rent paid in advance (v) is an asset as it is prepaid in Nature. 

 

Question 7:  Prepare an Accounting Equation from the following:      (Old Question)

(i) Started business with cash Rs 1,00,000.
(ii) Purchased goods for cash Rs 20,000 and on credit Rs 30,000.
(iii) Sold goods for cash costing Rs 10,000 and on credit costing Rs 15,000 both at a profit of 20%.  

Answer 7:

Points of Knowledge:- 

• In (ii) Calculation of total goods purchased Rs. 20,000(cash) + Rs.30, 000(credit) i.e, 50,000 in total. 

 

Question 8:  What will be the effect of the following on the Accounting Equation?

(i) Harish started business with cash Rs 18,000
(ii) Purchased goods for CashRs5,000 and on credit Rs 2,000
(iii) Sold goods for cash Rs 4,000 (costing Rs 2,400)
(iv) Rent paid  Rs1,000 and Rent Outstanding Rs 200 

Answer 8:

Points for Knowledge:-

• Total Stock Purchases (ii) by Harish is 5,000 (Cash) + 2,000 (Credit) i.e., 7,000 in total.
• Outstanding rent (iv), as outstanding in nature, so it is always liability for a business.

 

Question 9:   Prepare an Accounting Equation and Balance Sheet on the following basis:

(i)  Ajeet started business Rs 20,000.
(ii) He purchased furniture for Rs 2,000.
(iii) He paid rent of Rs 200.
(iv) He purchase goods on credit Rs 3,000.
(v) He sold goods (cost price Rs 2,000) for Rs 5,000 on cash. 

Answer 9:

Points of Knowledge:- 

• If the question is silent, we assume that sales and purchases are made in cash mode. 

 

Question 10:  Prove that the Accounting Equation is satisfied in all the following transactions of Suresh. Also prepare a Balance Sheet.

(i) Commenced business with cash Rs 60,000.

(ii) Paid Rent in Advance Rs 500.

(iii) Purchased goods for Cash Rs 30,000 and Credit Rs 20,000.

(iv) Sold goods for Cash Rs 30,000 Costing Rs 20,000.

(v) Paid Salary Rs 500 and Salary Outstanding being Rs 100.

(vi) Bought motorcycle for personal use Rs5,000. 

Answer 10:

Points of Knowledge:-

• In (vi) motorcycle purchased for personal use so it is treated as drawing, it is subtracted from capital. Anything purchased for personal use should be treated as drawing.

 

Question 11:  Show the effect of the following transactions on assets, liabilities and capital using the Accounting Equation. Also prepare a Balance Sheet.

(i) Started business with Cash Rs 60,000
(ii) Rent Received Rs 2,000
(iii) Accrued Interest Rs 500
(iv) Commission received in advance Rs 1,000
(v) Amount withdrawn Rs 5,000 

Answer 11:

Points of Knowledge:-

• In (iii) accrued interest is an asset for business. Hence, shown on the asset side.

 

Question 12:  Raghunath had the following transactions in an accounting year:

(i) Commenced business with cash Rs50,000.

(ii) Paid in to bank Rs 10,000.

(iii) Purchased goods for Cash Rs 20,000 and Credit Rs 30,000.

(iv) Sold goods for Cash Rs 40,000 Costing Rs 30,000.

(v) Rent paid Rs 500.

(vi) Rent Outstanding Rs 100.

(vii) Bought furniture Rs 5,000 on credit.

(viii) Bought refrigerator for personal use Rs 5,000.

(ix) Purchased motorcycle for cash Rs 20,000. 

Create an Accounting Equations to show the effect of the above transaction on his assets, liabilities and capital and also show his final Balance Sheet. 

Answer 12:

Points of Knowledge:- 

• In (ii) Calculation of total goods purchased Rs. 20,000(cash) + Rs.30,000 (credit) i.e.50,000 in total.
• In(vi) Here Refrigerator purchased by Raghunath for personal use so it is treated as drawing. It is subtracted from capital.

 

Question 12:  Prove that the Accounting Equation is satisfied in all the following transactions of Sameer Goel:(Old Question)

(i) Started business with cash Rs 10,000.

(ii) Paid rent in Advance Rs 300.

(iii) Purchased goods for cash Rs 5,000 and credit Rs 2,000.

(iv) Sold goods for cash Rs 8,000 costing Rs 4,000.

(v)  Paid salary Rs 450 and salary outstanding being Rs100.

(vi) Bought motorcycle for personal use Rs 3,000. 

Answer 12:

Points of Knowledge:- 

• In (ii) Calculation of total goods purchased Rs. 5,000(cash) + Rs.2, 000 (credit) i.e., 7,000 in total. 

• In (vi) Here motorcycle purchased for personal use so it is treated as drawing, it is subtracted from capital.  

 

Question 13:  Prepare an Accounting Equation from the following : 

(i) Started business with cash Rs 50,000 and goods Rs 30,000.
(ii) Purchased goods for cash Rs 30,000 and on credit from Karan Rs 20,000.
(iii) Goods costing Rs 40,000 were Sold for Rs 55,000.
(iv) Withdrew cash for personal use Rs 10,000.
(v) Rent outstanding Rs 2,000. 

Answer 13:

 

Question 14:  Prepare Accounting Equation from thefollowing :

(a) Started business with cash Rs 1,00,000.

(b) Purchase goods for cash Rs 20,000 and on credit Rs 30,000.

(c) Sold goods for cash costing Rs 10,000 and on credit costing Rs15,000 both at a profit of 20%.

(d) Paid salaries Rs 8,000. 

Answer 14:

Points of Knowledge:-

• Total goods purchases = Cash Purchases + Credit Purchases

=  20,000 + 30,000 = 50,000 

• Calculation of profit on sale = Cash Sale × % of profit

  = 10,000 × 20% = 2,000

  = Credit Sale × % of Profit

= 15,000 × 20% = 3,000

= Total Profit = 2,000+3,000  

 

Question 15:  Show an Accounting Equation for the following transactions:

(i) D. Mahapatra commenced business with cash of Rs 50,000 and Rs 1,00,000 by cheque; goods Rs 60,000; machinery Rs 1,00,000 and furniture Rs 50,000.

(ii) 1/3^rd of above goods sold at a profit of 10% on cost, and half of the payment is received in cash.

(iii) Depreciation on machinery provided @10%.

(iv) Cash withdrawn for personal use Rs 10,000.

(v) Interest on drawings charged @ 5%.

(vi) Goods Sold to Gupta for Rs 10,000 and received a Bill Receivable for the same amount for 3 months.

(vii) Received Rs 10,000 from Gupta against the Bill Receivable on its maturity. 

Answer 15:

Points of knowledge:- 

• Total Capital= Cash + Bank + Stock + Machinery + Furniture

50,000 + 1, 00,000 + 60,000 + 1,00,000 + 50,000 = 3,60,000 

 

• Total Value of stock = Rs. 60,000

Value of  ¹/_{3 rd} Stock = 60,000 × ¹/₃   = Rs. 20,000

Calculation of Profit = 20,000 × 10% = Rs. 2,000

Total Sales= Value of stock+ Profit

     20,000 + 2,000= Rs. 22,000

Half of total sales value received in cash = 22000 × ½ =Rs. 11,000 

• Interest on drawings = 10,000 × 5% = Rs. 500 

 

Question 16:  Show an Accounting Equation on the basis of the following transactions:

Answer 16:

 

Points of knowledge: -

• In (vi) cost of Building & Furniture is Rs. 1,00,000. Don’t Separate it.
• In (xi) Investment in share market for personal use should be treated as drawings.

 

Question 17:  If the capital of a business is Rs 3,00,000 and liabilities are Rs 50,000, loss Rs 70,000, calculate the total assets of the business.  

Answer  17:

TOTAL ASSETS WILL BE RS. 2,80,000

Question 17:  Show the accounting equation on the basis of following transactions:(Old Question)

(a) Ram started business with Rs 25,000.

(b) Purchased goods from Shyam Rs 10,000.

(c) Sold goods to Sohan costing Rs 1,500 for Rs 1,800.  

Answer 17:

 

Points for Knowledge:-

• In (ii) The name of the seller is given so it will be treated as credit sale. It will create effect on liability side (creditors) also. 

 

Question 18:  If total assets of a business are Rs 1,30,000 and Net worth is Rs 80,000, calculate the creditors . 

Answer  18:

TOTAL CREDITORS WILL BE RS. 2,80,000

 

Question 19:  A commenced his cloth business on 1st April, 2017 with a capital of Rs 30,000. On 31st March 2018, his assets were worth Rs 50,000 and liabilities of Rs10,000. Find out his closing capital and profits earned during the year.

Answer  19:

 

Question 20:  If capital of a business is Rs 1,40,000 and liabilities are of Rs 80,000, calculate the total assets of the business. 

Answer  20:

 

Question 21:  Calculate the total assets if:

(i) Capital is Rs 40,000.
(ii) Creditors are Rs 25,000.
(iii) Revenue during the period is Rs 50,000.
(iv) Expenses during the period are Rs 40,000. 

Answer 21:

Method 2:-

Total assets = Opening capital + Revenue during the year – Expenses during the year + creditors

            = 40,000 + 50,000 – 40,000 + 25,000

           = 75,000

 

Question 22:  

(a) A had a capital of Rs 75,000 on 1st April, 2017. He had also goods amounting to Rs 15,000 which he had purchased on credit and the payment had not been made. Find out the value of the total assets of the business.

(b) After a period of one month, he came to know that he had suffered a loss of Rs 1,700. He withdrew Rs 800 for his personal use. Find out his capital and assets of the business. 

Answer 22:

 

Question 23: 

(a) Mohan started a business on 1st April, 2017 with a capital of Rs 10,000 and borrowed Rs 3,000 form a friend . He earned a profit of Rs 5,000 during the year ended 31st March, 2018 and withdrew cash Rs 4,000 for private use. What is his capital on 31st March, 2018?

(b) Mahesh started a business with a capital of Rs 15,000 on 1st April, 2017. During the year, he made a profit of Rs 3,000. He owes Rs 2,500 to suppliers of goods . What is the total of assets in his business on 31st March, 2018?

Answer 23:

 

 

Question 24:  

On 31st March, 2019, the total assets and external liabilities were Rs 2,00,000 and Rs 6,000 respectively . During the year, the proprietor had introduced capital of Rs 20,000 and withdrawn Rs 12,000 for personal use. He made a profit of Rs 20,000 during the year. Calculate the capital as on 1st April, 2018 

Answer 24:

 

CAPITAL AS ON MARCH 31, 2018 = 1,94,000  

CAPITAL ON APRIL 01, 2017 = 1,66,000

 

Question 25:  Mohan started a business on 1st April, 2017 with a capital of Rs 25,000 and a loan of Rs 12,500 borrowed from Shyam. During 2018-19 he had introduced additional capital of 12,500 and had withdrawn Rs 7,500 for personal use. On 31st March, 2019 his assets were Rs 75,000. Find out his capital as on 31st March, 2019 and profit made or loss incurred during the year 2018-19. 

Answer 25:

PROFIT DURING THE YEAR 2017-18 = 32,500   

 

Question 26: Calculate the amount of External Equities as on 31^st March, 2021 in the following cases:

(i) On 31^st March, 2021, total assets and capital were Rs. 15,00,000 and Rs. 10,50,000 respectively.

(ii) On 1^st April, 2020, Mukesh started business with a capital of Rs. 3,00,000 and a loan of Rs. 3,00,000 borrowed from a friend. During the year, he earned a profit of Rs. 1,50,000. On 31^st March, 2021 the total assets were Rs. 15,00,000.

(iii) On 1^st April, 2020, Ramesh started business with a capital of Rs. 3,00,000 and  a loan of Rs. 3,00,000 borrowed from a fixed. During the year, he earned a profit of Rs. 1,50,000, introduced an additional capital of Rs. 1,80,000 and had withdrawn Rs. 90,000 for his personal use. On 31^st March, 2021 total assets were Rs. 15,00,000. 

Answer 26.

(i) External Liabilities = Assets – Capital

External Liabilities = Rs. 15,00,000 – Rs. 10,50,000

External Liabilities = Rs. 4,50,000

 

(ii) Closing Capital = Opening Capital + Additional Capital + Profit – Drawings

Closing Capital = Rs. 3,00,000 + Rs. 0 + Rs. 1,50,000 – Rs. 0

Closing Capital = Rs. 4,50,000

 

External Liabilities = Assets – Capital

External Liabilities = Rs. 15,00,000 – Rs. 4,50,000

External Liabilities = Rs. 10,50,000

 

(iii) Closing Capital = Opening Capital + Additional Capital + Profit – Drawings

Closing Capital = Rs. 3,00,000 + Rs. 1,80,000 + Rs. 1,50,000 – Rs. 90,000

Closing Capital = Rs. 5,40,000

 

External Liabilities = Assets – Capital

External Liabilities = Rs. 15,00,000 – Rs. 5,40,000

External Liabilities = Rs. 9,60,000