Is Money Better? Hannah and Aysha are school friends of yours at Vanier High School. The two gis happen to be discussing their personal fortunes at the moment. Hannah is feeling rich because she has $2 000 in a personal bank account. A distant aunt who dios recently left her the money. Aysha feels pretty well off, too. She has less money but she does have some valuable possessions, including fashionable clothes and jewellery, as well as som shares that were left to her by her grandmother. For reasons that she canner explain, she feels that she is just as well off as Hannah. You get into the conversation at lunch break. You suggest to the two girls that they each prepare a personal balance sheet. You explain how to go about it and how to estimate the value of non-cash items. The balance sheets, you say, will show who is better off financially, The girls prepare their balance sheets according to your directions and come un with the following: HANNAH'S BALANCE SHEET SEPTEMBER 30, 20 AYSHA'S BALANCE SHEET SEPTEMBER 30, 20- Assets Bank Balance Clothes $2 000 1 500 Total Assets $3 500 Liabilities and Equity Debts Owing nil Hannah's Capital $3 500 Total Liabilities and Equity $3 500 Assets Bank Balance $ 10 CD Player 500 Jewellery 1 000 IBM Shares 1 100 Clothes I 200 Total Assets $3 810 Liabilities and Equity Debts Owing $ 200 Aysha's Capital 3 610 Total Liabilities and Equity $ 3.810 When the two girls get together to compare balance sheets, they still cannot agree Hannah thinks that she is better off because she has more cash and clothes. Aysha disagrees because she has greater capital 1. In a paragraph, discuss these balance sheets with Hannah and Aysha. Explain to them how to measure a person's equity. Can You Spend the Equity? Raj Singh is a young man who has just inherited a business from his father. Raj has little business experience but is anxious to learn and willing to work hard. The business has not been operating very profitably lately because it badly needs to replace outdated equipment. This will cost $35 000. The latest balance sheet of the business shows the following: BANNAGER'S CLEANERS BALANCE SHEET APRIL 30, 20 Assets Cash Accounts Receivable Land Building Equipment Total Assets $ 3 000 17 000 30 000 50 000 20 000 $120 000 Liabilities Accounts Payable Bank Loan Mortgage Payable Total Liabilities $ 5 000 30 000 50 000 $ 85 000 Owner's Equity V. Singh, Capital Total Liabilities and Equity 35 000 $120 000 After examining the balance sheet, Raj believes that he sees the solution to the problem. He wants to use the equity to purchase the new equipment. The account- ant hastens to point out to Raj that this is not possible. Raj demands an explanation. 1. What explanation will the accountant give