Question

1. At the beginning of the year, total assets amounted to P800,000 while total owner’s equity amounted to P550,000. During the year, assets increased by P50,000 while liabilities increased by P30%. If the owner contributed additional of P18,000 and withdrawn P5,000 during the year, how much is profit or loss earned or incurred by the entity? Indicate whether profit or loss.

Answer 1

Total assets = Total liabilities + Total owner’s equity

P800,000 = Total liabilities + P550,000

Total liabilities = 800,000 - 550,000 = P250,000

Total assets (end of the year) = 800,000 + 50,000 = P850,000

Total liabilities (end of the year) = 250,000*(1+ 0.30) = P325,000

Total owner’s equity (end of the year) = 550,000 + 18,000 - 5,000 = P563,000

Total assets (end of year) = Total liabilities + Total owner’s equity

P850,000 = P325,000 + P563,000

P850,000 = P888,000

The amount of total liabilities and equity is greater than total assets that means loss incurred by the entity during the year.