1.

Each transaction can be analyzed in the following manner

a. Transaction 1: The business received a sum of Rs.5,00,000, which is an

asset to the business. The business owes this amount to the owner,
therefore it represents the capital of the business. Hence, capital of
Rs.5,00,000 is equal to the assets of Rs.5,00,000.

b. Transaction 2: Purchasing goods on credit for Rs.40,000 increases the

assets by 40,000 and also the liability by Rs.40,000. The sum of liabilities
and capital is now Rs.5,40,000 which is equal to the assets of
Rs.5,40,000.

c. Transaction 3: Paying salary of Rs.10000 to the employees decreases

both assets and capital by Rs.10,000, while the liabilities remain the same.

d. Transaction 4: Investing in another bank account increases one asset

(bank balance) and decreases another asset (cash balance). Hence the
accounting equation remains the same after transaction 3.

e. Transaction 5: Withdrawing Rs.25,000 for school fees decreases one

asset (bank balance) by Rs.25,000 and also decreases the capital by
Rs.25,000, while the liabilities still remain the same. After this transaction,
the assets are Rs.5,05,000 which is equal to the sum of liabilities of
Rs.40,000 & capital of Rs.4,65,000.

No. Transaction Assets Liabilities Capital

1 Received as sum of 5,00,000 5,00,000

Rs.5,00,000

2 Purchased goods on credit 5,40,000 40,000 5,00,000

Rs.40,000

3 Paid Rs.10000 as salary 5,30,000 40,000 4,90,000

4 Invested Rs.200000 in a 5,30,000 40,000 4,90,000

fixed deposit account

5 Paid school fees of the kid 5,05,000 40,000 4,65,000

Rs 25000
2. Five commonly used accounting terms are

a. Assets - Assets are economic resources controlled by a business entity

whose cost at the time acquisition can be measured. An asset can be -
cash balance, cash received by selling goods, items to be used which can
generate cash flows.
Few examples of assets are - Office furniture, cash balance, bank
balance, inventory, office building etc.

b. Liability - In simple words, liabilities are claims to assets. A business can

raise financial resources from its owners and outside parties. Both will
have claims to the assets of the business entity. Liabilities are claims to
assets of parties other than owners. For instance, a person started a
business with a cash capital of Rs.1,00,000 and took a loan of Rs.50,000
from the bank. This sum of Rs.50,000 taken from the third party is the
liability to the business.

c. Revenue - Revenue is the total amount of cash received by a business

entity by sales of goods or services. For example, if a car manufacturing
company sells 5 units of car for Rs.5,00,000 each, the total revenue is
Rs.25,00,000.

d. Cost - It is the monetary measurement of the amount of resources used

for some purposes. For example, a business entity incurs a cost when it
purchases an item of equipment.

e. Goods - Goods refers to the property in which the business deals. Goods
are produced for sale or purchased for resale, not for use in the business.
For example, furniture purchased by a dealer for resale to consumers are
goods.

3. A.
From the given table,
Closing stock = 70
Opening stock = 40
Cost of goods sold = 580
Creditor’s closing balance = 100
Creditor’s opening balance = 60
 Cash purchases = 45
Original cost of equipment sold = 400
Accumulated depreciation on the equipment = 80
Gain on the equipment sold = 50
Creditor’s closing balance = 100
Creditor’s opening balance = 60

As we know,

Total Purchases = Closing stock- Opening stock + cost of goods sold

= 70 - 40 + 580
= 610

Credit Purchases = Creditor closing balance + Cash purchases - Opening

creditor balance
= 100 + 45 - 60
= 85

Payment to creditor = Cost of goods sold + Increase in inventory - Increase in

accounts payable

Here, Increase in inventory = Accumulated depreciation on the equipment -

Gain on the equipment sold = 80 - 50 = 30

Increase in accounts payable = Creditor closing balance - Opening creditor

balance = 100 - 60 = 40

So, Payment to creditor = 580 + 30 - 40 = 570

Hence,

Total Purchases = 610

Credit Purchases = 85
Payment to Creditors = 570

B. Net Book Value (NBV) - Net book value is the amount at which an
organization records an asset in its accounting records. It can be calculated
as the original cost of an asset, minus any accumulated depreciation,
accumulated depletion, accumulated amortization, and accumulated
impairment.
Accumulated depreciation - Accumulated depreciation is the cumulative
depreciation of an asset up to a single point in its life. It is a contra asset
account, meaning its natural balance is a credit that reduces the overall asset
value

From the given table, NBV can be calculated as

NBV = Cost of asset - Accumulated depreciation = 400 - 80= 320

Gain from sale = Cash proceeds from sale of investment - (Cost of asset -
Accumulated depreciation)

Let Cash proceeds from sale of investment be X,

Then,

50 = X - (400 - 80)

50 = X - 320

X = 370

Hence, cash proceeds from sale of investment is 370