A bank has reserves of Rs 150, loans of Rs 600 and deposits of Rs 700. What is its net worth, and on which side of its balance sheet is it recorded?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs 50, on the right hand side
Given:
Reserves = Rs 150
Loans = Rs 600
Deposits = Rs 700
Assets are reserves plus loans. The only liability is deposits. Net worth = Assets − Liabilities.
Assets = 150 + 600 = Rs 750
Net worth = 750 − 700 = Rs 50
Since assets are greater than liabilities, the difference is recorded on the right hand side, with the deposits. Then both sides add up to Rs 750.
NCERT (2026-27): “3.3 MONEY CREATION BY BANKING SYSTEM … Conventionally, the assets of the firm are recorded on the left hand side and liabilities on the right hand side. Accounting rules say that both sides of the balance sheet must be equal or total assets must be equal to the total liabilities. … Assets = Reserves + Loans Liabilities for any firm are its debts or what it owes to others. For a bank, the main liability is the deposits which people keep with it. Liabilities = Deposits The accounting rule states that both sides of the account must balance. Hence if assets are greater than liabilities, they are recorded on the right hand side as Net Worth. Net Worth = Assets – Liabilities” |