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Sir in this question examiner has asked that advise kutchen on difference between equity and liability and this is of 4 marks
In open tuition answer, its written that :
Equity is the residual interest in the assets of the entity after deducting the liabilities.
A liability is a present obligation, as a result of a past event that gives rise to an outflow of economic benefit.
The key difference between equity and a liability is the contractual obligation to deliver cash under the liability. Example :An example is with preference shares, where legally they are a share but in substance any contractual obligation to deliver cash, will mean that it is treated as a liability, as is the case with a redeemable preference share.
If we write exactly the above answer as it is without any further explanation , then will we get full 4 marks for this answer? Or do we need to explain more?
Answer looks fine to me.
Remember you have to get 50% not 100%. In these exams the aim is to pass – that’s all.
Yes the aim is to pass the exam, but still if I ask you that if you were the examiner then how much would you give out of 4 marks for the above answer if the student has written exactly the above?
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