When a firm borrows money from a bank, what is the impact on the accounting equation? MCQ with Answer and Explanation

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When a firm borrows money from a bank, what is the impact on the accounting equation?

A. Assets increase, Equity increases

B. No change in total assets

C. Assets increase, Liabilities increase

D. Liabilities increase, Equity decreases

Answer: Option C

Solution (By JKSSB Mock Tests)

Cash/Bank (Asset) increases, and Bank Loan (Liability) increases simultaneously.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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Question #1

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Assertion (A): Under Ind AS 23, borrowing costs directly attributable to the acquisition of a qualifying asset must be capitalized. Reason (R): A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale. Choose the correct option.

A. Both A and R are true but R is NOT the correct explanation of A

B. A is true but R is false

C. A is false but R is true

D. Both A and R are true and R is the correct explanation of A

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Correct Answer: Option D

Explanation:
Ind AS 23 requires capitalization of borrowing costs for qualifying assets. A qualifying asset is defined precisely as one that takes a substantial period to be ready for use or sale. R correctly defines the term and explains the basis for capitalization.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

Question #2

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A social audit report is:

A. Voluntary or mandated by specific statutes like Mahatma Gandhi NREGA

B. Legally mandatory for all companies

C. Part of tax audit

D. Conducted by the Comptroller and Auditor General only

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Correct Answer: Option A

Explanation:
Social audit is mandated for certain government schemes (e.g., MGNREGA) and may be voluntary for others. It is not universally mandatory for all companies.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping