FAG1010 (Financial Accounting): Tutorial 3

Topic 4: Accounting Equation

Section A: Multiple choice questions

1. Which of the following is correct?

Assets Liabilities Capital

RM RM RM

A 6,980 1,560 5,000

B 9,720 2,150 6,200

C 8,450 3,800 4,600

D 7,500 1,200 6,300

2. All the following are regarded as assets of a business, except

A A machine owned by the business

B A sum of money owed to the business
C An inventory of goods that have yet to be sold
D A shop lot that has been rented for use by the business

3. On 1 August 20x2, Johan decided to start a sole proprietorship business with the
following items: building RM400,000; motor vehicles RM160,000; fixtures and fittings
RM120,000; loan from bank RM100,000; cash at bank RM30,000. What was the amount
of capital that Johan contributed to the business?

A RM 710,000
B RM 810,000
C RM 610,000
D RM 580,000

4. According to the accounting equation, when owner's equity is constant, any increase
in liability will cause _____

A an increase in assets.
B a decrease
C no change
D uncertainty

5. Which of the following is not an asset?

A Loan to Manja
B Bank overdraft

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C Machinery
D Freehold premises

6. Which of the following statements is correct?

A Profits will increase the capital.

B Profits have no eYect on capital.
C Profits will decrease the capital.
D Capital can only be derived from profit.

7. The total assets of a business at the end of the year was RM120,000 and the
liabilities were 50% of owner's equity. Determine the owner's equity at the end of the
year. (Round oY the answer to the nearest Ringgit.)

A RM240,000
B RM60,000
C RM40,000
D RM80,000

8. An investment by the owner of a business entity in a building, at a cost of RM100,000

with
a RM40,000 outstanding loan, would

A increase owner's equity RM 100,000.

B increase total assets RM 140,000.
C decrease liabilities RM 40,000.
D increase owner's equity RM 60,000.

9. Determine the total expenses based on the following data:

RM
Assets 72,000
Capital 70,000
Revenues 20,000
Liabilities 16,000

A RM138,000
B RM34,000
C RM106,000
D RM38,000

10. At the beginning of the year, Rahman Marketing had total assets of RM450,000 and
owner's equity of RM192,000. During the year, assets increased by RM72,000 whereas
liabilities decreased by RM84,000. Owner's equity at the end of the year was

A RM258,000
B RM462,000

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C RM348,000
D RM366,000

11. Which of the following are current liabilities?

I Bank
II Long-term loan
III Creditor
IV Revenue received in advance

A I and Il only
B I and III only
C II and III only
D III and IV only

12. Which of the following items is classified as an asset?

A Inventory
B Accounts receivable
C Accounts payable
D Both A and B

13. Owner's equity of a business entity will increase when

I a net profit arises

II bad debts are recovered
III goods are taken by the owner for his personal use
IV assets are purchased for cash

A I and II only
B III and IV only
C I, II and III only
D I and III only

14. Aqila Enterprise bought computers on credit from Mia Infotech Sdn. Bhd. What is
the eYect of this transaction?

A Increase in both asset and liability

B Increase in asset and decrease in liability
C Increase in liability and decrease in asset
D Decrease in both asset and liability

15. When the owner of a business withdraws cash for personal use, what is the
implication to the firm's basic accounting equation?

Asset Liability Equity

A Increased Decreased Unchanged

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B Unchanged Decreased Increased
C Increased Increased Decreased
D Decreased Unchanged Decreased

16. Payment to a creditor will

A increase an asset and decrease another asset.

B decrease an asset and decrease owner's equity.
C decrease an asset and decrease a liability.
D decrease an asset and increase a liability.

17. The owner's equity will reduce when

I a business obtains net profit

II a business incurs net loss
III the owner contributes additional capital
IV the owner pays the business debt using his own pocket money
V the owner withdraws goods for his personal consumption

A II only
B Il and V only
C I, III and IV only
D II, IV and V only

18. The following accounts are liability balances, except

A Bank overdraft
B Payables
C Loan to Maya
D Loan from a bank

19. Which of the following transactions is not income?

A Rendered services of RM5,000 on credit for Athirah and RM6,500 for cash
B Purchased RM10,000 worth of compute for cash and RM2,000 worth of goods for cash
C Received commission of RM8,000 an interest of RM2,000
D Sold RM10,000 worth of goods for cash! and a motor vehicle costing RM15,000 wa
sold for RM13,000

20. Siti sold goods costing RM 365 and received RM 500 cash. Which of the following
accounting elements will be aYected by the transaction?

A Expense, Asset and Liability

B Expense, Asset and Capital
C Expense and Asset
D Revenue and Asset

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Section B: Subjective Questions

Question 1

The following is the basic accounting equation. Determine the missing figures.

Assets = Liabilities + Owner's Equity

(a) RM40,000 = RM10,000 + ?
(b) RM60,000 = ? + RM40,000
(c) ? = RM20,000 + RM35,000

Question 2

Items Assets (RM) Capital (RM) Liabilities (RM)

(a) 70,000 ? 23,500
(b) ? 23,500 75,800
(c) 120,400 75,800 ?

Question 3

Classify the following items under the correct grouping, i.e. as asset, liability or
component of owner's equity.

(a) Equipment
(b) Bank loan
(c) Cash at bank
(d) Drawings
(e) Land
(f) Bank overdraft
(g) Furniture and fittings
(h) Capital

Question 4

Classify the following items under the correct grouping of revenue or expense.

(a) Salary
(b) Rental received
(c) Insurance premium
(d) Advertising expense
(e) Commission received
(f) Dividend income
(g) Wages
(h) Electricity bills

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Question 5

The following is a list of accounting transactions. Indicate the eYect of each transaction,
ie: '+' (increase), -' (decrease) or NE' (No eYect), in assets, liabilities and owner's equity.

Items Transactions Assets Liabilities Owner's

Equity

1 Mia started a business and

contributed RM5,000 as investment

2 Purchased five units of computers for

business use on credit

3 Paid rental of RM2,000 by cash for the

shoplot occupied

4 Bought goods for resale on credit from

Lim Company

5 Sold goods to a customer for cash

6 Sold goods to Kedai Maju on credit

7 Mia withdrew cash from the business

for her own use

8 Paid salary to a worker by cash

9 Paid advertising expense by cash

10 Paid cash RM 2,000 to settle an

amount owing to payables.

Question 6

Mr Tan started Kaya Raya Wealth Management, a new financial planning business that
commence operations on the first day of September. Kaya Raya Wealth Management
completed the following transactions during its first month of operations.

Sept 1 Mr Tan invested RM120,000 cash into the business.

1 The business rented a fully furnished oYice in Sunway Pyramid and paid
RM6,400 cash for September's rent.
2 The business purchased RM3,360 oYice equipment on credit from SK Furniture.
3 The business paid RM1,600 cash for this month's cleaning services.
8 The business provided financial consulting services for a client and immediately
collected RM5,500 cash.
10 The business provided RM3,000 of financial consulting services for a client on
credit.

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 14 The business paid RM800 cash for an assistant's salary for the first half of this
month.
21 The business received RM3,000 cash payment for the services provided on
September 10.
23 The business provided RM4,800 of financial consulting services on credit.
26 The business received RM4,800 cash payment for the services provided on
September 23.
27 The business paid SK Furniture RM3,360 cash for the oYice equipment bought
on September 2.
28 The business purchased RM450 of advertising in this month's The Star
Newspaper on credit; cash payment is due October 1.
28 The business paid RM800 cash for an assistant's salary for the second half of
this month.
29 The business paid RM390 cash for this month's telephone bill.
29 The business paid RM1,080 cash for this month's utilities.
30 Mr Tan withdrew RM2,000 cash from the business for personal use.

Required:

i. Arrange the following asset, liability and equity titles in a table: Cash; Account
Receivables; OYice Equipment; Account Payables; Mr Tan, Capital; Mr Tan,
Withdrawals; Revenue and Expenses.

ii. Show eYects of the transactions on the accounts of the accounting equation by
recording increases and decreases in the appropriate columns. Determine the final
total for each account and verify that the accounting equation is balanced.

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Section C: Extra exercise questions (for students’ own practice)

1) Using accounting equation, answer the following questions:

a. Total assets of Rajnapur Services equal to RM 120,000 and its equity is RM
50,000. What is the amount of its liabilities?
b. Flip Onlline Shop has assets equal to RM 830,000 and its liabilities and equity
amounts are equal to each other. What is the amount of its liabilities? What is
the amount of its equity?
c. Total assets of Hong Tat Transport equal RM 830,000 and its liabilities and
equity amounts are equal to each other. What is the amount of its liabilities?
What is the amount of its equity?
d. At the beginning of the year, Sedap Drinks Enterprise’s assets are RM 800,000
and its equity is RM 60,000. During the year, assets increase by RM 280,000
and liabilities increase gy RM 120,000. What is the equity of Sedap Drinks
Enterprise at the end of the year?
e. At the beginning of the year, Kaya-Raya Wealth Management’s liabilities are
RM 180,000. During the year, assets increase by RM 160,000 and at the end of
the year, assets are RM 360,000. Liabilities decrease by RM 20,000 during the
year. What is the beginning and ending amounts of equity?

2) Below are eight transaction analysis. Evaluate each of the suggested accounting
treatments and tick whether the accounting treatment is true or false.

Transaction ENects T/F

a. Paid monthly shop rent of RM Decrease asset, increase
5,000. owner’s equity.
b. Sold equipment for RM 120,000, Increase asset, decrease
which was the cost of the asset.
equipment.
c. Paid RM 800 cash for utility bills. Increase asset, decrease
liability.
d. Purchased machinery on credit Increase asset, increase
at a cost of RM 500,000. liability.
e. Performed services and Increase asset, increase
received cash of RM 1,000. revenue.
f. Received RM75,000 cash from Increase asset, increase
the owner as capital owner’s equity.
contribution.
g. Earned RM 2,400 service Increase asset, increase
revenue on credit. liability.
h. Paid cash RM 390 for telephone Increase liability, decrease
bills. asset.

THE END