Question

Singh's Dell started Year 9 with total assets of £28,000 and total liabilities of £16,000. At the end of Year 9, Singh's Delis' total assets stood at £42,000 and total liabilities were £23

Required

2. Identify two possible reasons for the change in owner's equity during the year.
Requirement 1
First determine the owner's equity increase or decrease and by how much.
The owner's equity increased during the year by £7,000. (Type an integer.)
Requirement 2
Select two possible reasons for the change in owner's equity from the lists below:
and Pay a liability
Purchase of asset for cash

Answer 1

The owner's equity for Singh's Deli increased by £7,000 over Year 9. This could be due to retained earnings from the deli's profits or an additional investment made by the owner.

Step-by-step explanation:

To determine the increase or decrease in owner's equity for Singh's Deli, we first need to examine the changes in assets and liabilities from the beginning to the end of Year 9. We know the assets increased from £28,000 to £42,000 and liabilities increased from £16,000 to £23,000. Owner's equity is calculated as the difference between total assets and total liabilities. At the start of Year 9, the owner's equity was £28,000 (assets) - £16,000 (liabilities) = £12,000. By the end of Year 9, it was £42,000 (assets) - £23,000 (liabilities) = £19,000. The owner's equity therefore increased by £19,000 - £12,000 = £7,000 over the year.

Two possible reasons for the change in owner's equity could be:

• Retained earnings from the deli's profits over the year, which have been reinvested into the business, thus increasing the owner's equity.
• An additional investment made by the owner into the business, which would increase the total assets without increasing liabilities, leading to an increase in owner's equity.