Question

Given below are two statements:
Statement (I): Trade tax is not included in direct taxes.
Statement (II): "Assets = Liabilities" is known as accounting equation.
In light of the above statements, choose the most appropriate answer from the options given below:

• A. Both Statement (I) and Statement (II) are true.
• B. Both Statement (I) and Statement (II) are false.
• C. Statement (I) is true but Statement (II) is false.
• D. Statement (I) is false but Statement (II) is true.

Hint:

Always remember the complete accounting equation:
\[ \text{Assets} = \text{Liabilities} + \text{Equity} \] Assets represent what the business owns, while Liabilities and Equity represent how those assets were financed.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
This question evaluates concepts related to public finance (classification of taxes) and double-entry bookkeeping (the fundamental accounting equation).

Step 2: Detailed Explanation:
Let us evaluate both statements:
Statement (I) is correct.
Direct taxes are paid directly by the taxpayer to the government (such as income tax or wealth tax).
Trade tax (such as sales tax, value-added tax, or GST) is an indirect tax because its burden is passed on to the final consumer.
Therefore, trade tax is indeed *not* included in direct taxes.
Statement (II) is incorrect.
The fundamental accounting equation that governs double-entry bookkeeping is:
\[ \text{Assets} = \text{Liabilities} + \text{Owner's Equity} \] Claiming that "Assets = Liabilities" is the accounting equation is incorrect because it ignores the owner's equity (or capital), which represents the owner's residual claim on the assets.
Therefore, Statement (I) is true, but Statement (II) is false.

Step 3: Final Answer:
Statement (I) is true but Statement (II) is false.