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Net assets and equity

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Net assets and equity

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by P2-D2.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • January 12, 2024 at 5:44 am #697948
    Syed Ahsan Ali
    Participant
    • Topics: 136
    • Replies: 85
    • ☆☆☆

    I have few questions…

    1. Is it true that net assets is equal to the total assets less total liabilities.

    2. Equity is the total amount owing to the shareholders in a limited company which contains share capital, share premium, retained earnings, revaluation reserves and if there is literally any, please can you name them?

    3. The total equity is always equal to the total net assets.

    4. Are net assets and total equity both means the same thing?

    5. Is it true that the equity plus the long term liabilities that provide the finance for the business. This in invested in the assets used to run the business.

    January 18, 2024 at 8:08 am #698554
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7149
    • ☆☆☆☆☆

    1. Yes.

    2. The other one you might see is called other components of equity.

    3. Yes, think back to the accounting equation

    4. No. Net assets is asset less liabilities, so looking at what the company owns/controls less what it owes. Equity is the amounts owed to the owners of the business.

    5. Yes. The equity plus long-term debt is how the business has raised finance to run the company. This finance is then used to acquire PPE and inventory to be used within the business to generate profit.

    January 19, 2024 at 12:04 am #698612
    Syed Ahsan Ali
    Participant
    • Topics: 136
    • Replies: 85
    • ☆☆☆

    Sorry to ask again but I am a slight confused here. Please clarify that isn’t the total equity and net assets are amount that we owed to the shareholders because they are seemingly the same amount!

    1. When you say that net assets is total assets – total liabilities then we will end up having total equity which you also said is equal to net assets like (Net assets = Total assets – Total liabilities = Total equity). Is that correct?

    2. Let me ask you with example:
    Total assets = $100,000
    Total liabilities = $40,000
    Total equity = $60,000

    According to accounting equation the Total equity is equals to Net assets of $60000. Is that correct too?

    3. Let me ask you with Total equity breakdown as well.

    Share capital = 15,000
    Share premium = 5000
    Retained earnings = 30,000
    Other reserves = 10,000
    Total equity = $60,000

    The amount of equity ($60,000) is owed to shareholders because it is basically their money BUT on the other hand, the net assets is also ($60,000) then what is the basic difference?

    Although Thanks again for your utmost help. Good day!

    January 29, 2024 at 9:15 pm #699275
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7149
    • ☆☆☆☆☆

    1. Correct

    2. Correct

    3. We’re talking terminology, nothing more technical than that. Total assets less total liabilities is the net assets of the business. This is then equal to the equity within the business.

    Thanks

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