FAC CHP 2

CHAPTER 2
ACCOUNTING CLASSIFICATION AND ACCOUNTING EQUATION

THEORY QUESTIONS

1. a) Non-current assets are assets acquired/bought not for resale but to be used in the
running of the business. It has a useful life of more than one year. Non current assets
are divided into three categories:
a. Tangible non-current assets eg. Land and Building, Machinery, Office Equipment
b. Intangible non-current assets eg. Franchise, Goodwill, Pattern, Trademark
c. Investment

Current Assets are assets that are either cash or those that can be converted into cash
within one year. They are constantly changing their form during an accounting period.
Eg. Inventory or Stock, Accounts Receivables or Debtors, Cash at bank, Cash in hand.

b) Non-Current Liability is an amount owing by the business that is not repaid within one
year. Eg. Long-term Loan, Mortgage on Premises, Debenture.
Current Liability is an amount owing by the business that is to be paid in within one year.
Eg. Short-term Loan, Bank Overdraft, Creditors or Accounts Payable.

2. Motor vehicles were recorded as non current assets by Syarikat Perabot Tapa because
the motor vehiocles were used in the running of the business. Motor vehicles were
recorded as current assets by Federal Auto Bhd because the motor vehicles were meant
for resale.

3. Capital represents owner-supplied fund to the business for the acquisition of assets for
the business. It is the financial obligations of the business to the owner. Liability is the
financial obligations of the business to external parties. There are two types of liabilities
non-current liabilities and current liabilities.

4. Examples of items that owner of the business can contribute as capital are cash, motor
vehicles, building, office equipment, machinery, inventory etc.

5. Basic accounting equation: Assets = Capital + Liabilities

Expanded accounting equation: Assets + Expenses = Capital + Revenues + Liabilities

MULTIPLE-CHOICE QUESTIONS

1. C
2. C
3. D
4. D
5. B

PROBLEMS

1. a) Non current asset

b) Non current liability

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c) Expenses
d) Revenues
e) Current asset
f) Current liability
g) Current asset
h) Non current asset
i) Current asset
j) Current liability
k) Non current asset
l) Owners equity
m) Non current asset
n) Non current asset

2.
Capital = RM 32,600
Assets = RM 46,333
Liabilities = RM 11,200
Capital = RM 11,111
Assets = RM 128,700
Liabilities = RM 34,844

3. Capital = RM 37,000

4.
Kiddies Enterprise
Balance Sheet as at 31 December 2006
Non current assets RM
Fixtures and fittings 15,000

Current assets
Inventory 8,500
Accounts receivable 8,000
Cash in hand 16,500
33,000

48,000
Owners equity
Capital 30,000

Non current liability

Loan 16,000

Non current liability

Accounts payable 2,000

48,000

5. a) Asset cash increase

Asset motor vehicle increase
Capital increase

b) Advertising expense increase

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Asset cash increase

c) Asset building increase

Liability Loan increase

d) Asset bank decrease

Capital decrease

e) Asset bank decrease

Liability creditor decrease

f) Asset cash increase

Asset debtor decrease

g) Asset cash decrease

Capital decrease

h) Asset motor van increase

Asset bank decrease

i) Stationery expense increase

Asset cash decrease

j) Asset furniture increase

Capital increase

k) Asset bank decrease

Liability loan decrease

l) Asset cash increase

Capital increase

m) Salary expense increase

Asset cash decrease

n) Electricity expense increase

Asset cash decrease

o) Asset bank increase

Asset cash decrease