A company issues ordinary shares for cash of Rs. 500,000. Which combination correctly describes the immediate effect?
Correct answer: D. Assets increase and equity increases
- A. Assets decrease and equity increases
- B. Assets increase and liabilities increase
- C. Expenses increase and equity decreases
- D. Assets increase and equity increases
Explanation
Cash received from issuing shares increases the company's assets. The share capital component of equity also increases by the amount issued. The transaction does not create a liability or an expense.
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About Financial Statements
Financial statements present a business's financial performance and position through the income statement, statement of financial position, cash flow statement and changes in equity. Questions involve preparing and interpreting these statements, adjusting entries, depreciation, closing inventory, accrued and prepaid items, and distinguishing profit from cash flow.
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