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Hello sir. I asked you this earlier but having difficulty grasp this one.
1. I understand that the equity is the total amount owing to the shareholders in a limited company but does net assets refer to the actual worth of the business once it settled all what they owe?
2. You told me that the total equity is always equal to the total net assets (net assets = total assets less total liabilities) but aren’t they refer to the same amount but two different names!?
3. Does it mean that if we have equity of $100,000 then this is our net assets making it the worth of the business?
I appreciate your time.
1. Net assets is the total assets less the total liabilities. It is not the actual worth of the business because (for example) non-current assets appear on the SOFP at cost les depreciation whereas the actual value of them may well be different.
2. Although the two will always be equal, the are two different things.
3. If the equity is $100,000 then the net assets will also be equal to $100,000 (although that does not mean that is the value of the business – see my first reply).
Have you watched all of my free lectures on this? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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