Question

100 will become after 20 years at 5% per annum compound interest amount of

Answer 1

For the year ended April 01, 2010 :

Equity = Capital ` 1,00,000

Liabilities = Bank Loan + Creditors

` 1,00,000 + ` 75,000 = ` 1,75,000

Assets = Fixed Assets + Debtors + Stock + Cash & Bank

` 1,25,000 + ` 75,000 + ` 70,000 + ` 5,000 = ` 2,75,000

Equity + Liabilities = Assets

` 1,00,000 + ` 1,75,000 = 2,75,000

For the year ended April 01, 2011 :

Assets = ` 1,10,000 + ` 80,000 + ` 80,000 + ` 6,000 = ` 2,76,000

Liabilities = ` 1,00,000 + ` 70,000 = ` 1,70,000

Equity = Assets - Liabilities = ` 2,76,000 – ` 1,70,000 = ` 1,06,000

Profits = New Equity - Old Equity = ` 1,06,000 – ` 1,00,000 = ` 6,000

(j) Conservatism : Conservatism states that the accountant should not anticipate income and

should provide for all possible losses. When there are many alternative values of an asset, an

accountant should choose the method which leads to the lesser value. Later on we shall see that

the golden rule of current assets valuation - ‘cost or market price’ whichever is lower originated