Pearl Ltd. Company purchased a van for Rs. 12,000 making a down payment of Rs. 5,000 cash and signing a Rs. 7,000 note payable in 60 days. As a result of this transaction : (a) Total assets will increase by Rs. 12,000 (b) Total liabilities will increase by Rs. 7,000 (c) This transaction will not have immediate effect on owner's equity in the business (d) From the point of view of short-term creditor, this transaction will make business more liquid Choose the correct option:
(b) and (c)
The van adds Rs.12,000 to assets, but cash falls by Rs.5,000, so net assets increase by Rs.7,000. The note raises liabilities by Rs.7,000 and equity is unchanged. Cash falls while a current liability rises, so short-term liquidity worsens. Thus (b) and (c) are correct.
Important Questions from Miscellaneous
- List-I with List-II:
List-I
(Relief Materials)List-II
(Color Code)A. Shelter I. Yellow B. Clothes II. Khaki C. Food III. Red D. Medicine IV. Brown
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