27. Which of the following statements is correct?

A. “Equity” is the original money invested in the business that belonged to the owners of the business.

B. “Equity” is money that the business has used to grow – for example the original investment from owners or money from the sale of shares, and any loans made to the business

C. “Equity” is the value of the business

D. “Equity” is made up of not only the original investment in the business, but also any profits that were retained over the years.

Answer : D

A is “CAPITAL”. It is only one part of the total equity. B includes loans and these must be accounted for separately. Equity may be the original value, but the business is hopefully worth much more than the equity! D is correct. There are other elements that could be included, but essentially Equity is the original money that belonged to the investors, plus any funds that they did not receive as dividends. There may also be revaluation reserves.