May & Co's equity (share capital and retained earnings) decreased by 4% between 20X3 and 20X4.Which two of the following are plausible explanations for the decrease?
A.The business made a substantial loss in the 20X4 financial year.
B. Inventory and trade payables were both higher at the 20X4 year end because inventory was being built up to fulfil a large order.
C. A substantial bad trade receivable amount was written off during the 20X4 financial year.
D. The business disposed of several non-current assets at their carrying amounts during the 20X4 financial year.The assets were surplus to requirements and were not replaced.

Question

May & Co's equity (share capital and retained earnings) decreased by 4% between 20X3 and 20X4.Which two of the following are plausible explanations for the decrease? 
A.The business made a substantial loss in the 20X4 financial year.
B. Inventory and trade payables were both higher at the 20X4 year end because inventory was being built up to fulfil a large order.
C. A substantial bad trade receivable amount was written off during the 20X4 financial year.
D. The business disposed of several non-current assets at their carrying amounts during the 20X4 financial year.The assets were surplus to requirements and were not replaced.

Quizplus · Accepted Answer

A substantial loss in the financial year would directly reduce retained earnings, decreasing overall equity. Writing off a substantial bad trade receivable would also decrease retained earnings through increased expenses, thus reducing equity.

May & Co's Equity (Share Capital and Retained Earnings) Decreased