Question
During a reporting period, a company’s assets increase
by Rs. 80,000,000. Liabilities decrease by Rs. 20,000,000. Equity must therefore?Solution
According to the fundamental accounting equation, Assets = Liabilities + Equity. If the assets increase by Rs. 80,000,000 and liabilities decrease by Rs. 20,000,000, then the equation can be represented as: Assets (+ Rs. 80,000,000) = Liabilities (- Rs. 20,000,000) + Equity To solve for Equity, we can rearrange the equation as follows: Equity = Assets - Liabilities Equity = (Assets + Rs. 80,000,000) - (Liabilities - Rs. 20,000,000) Equity = Rs. 100,000,000 Therefore, equity must increase by Rs. 100,000,000 to balance the equation.
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