Explain the approaches of proprietary funds. - Vidyadip

Question

Explain the approaches of proprietary funds.

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Answer

There are two approaches used to determine the owner’s funds. Under both the approaches owners’ funds remain identical.
$1.$ Liabilities Based Approach: As per this approach ;
Owners’ funds $=$ Equity share capital $+$ Preference share capital $+$ Reserves and surplus $–$ Debt balance of $P\ \&\ L$ A/c $($if any$).$
$2.$ Assets Based Approach: As per this approach ;
Owners’ funds $=$ Non-current Assets $+$ Current Assets $–$ Non-current liabilities $–$ Current liabilities.

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