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JAMB Principles of Accounts 2004 Question 2

Question 2

Accounting Equation

The loss of equipment in a fire disaster results in

  1. A.a decrease in current assets
  2. B.an increase in liabilities and assets
  3. C.a decrease in assets and capital
  4. D.an increase in liabilities and a decrease in assets
Show the answer and explanation

Answer: C (a decrease in assets and capital)

Explanation

The equipment (an asset) is gone and the loss reduces the owner's capital, so both assets and capital fall.