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CA Foundation · Accounting · Accounts from Incomplete Records

A trader's closing capital by the Statement of Affairs method is Rs 6,00,000. Later it is found that a provision for doubtful debts of Rs 15,000 was not made and Rs 8,000 of rent paid in advance was treated as an expense and omitted from assets. What is the corrected closing capital?

Corrected closing capital is Rs 5,93,000. The unrecorded provision for doubtful debts lowers assets by Rs 15,000, while the omitted prepaid rent adds an asset of Rs 8,000, so the net change is a reduction of Rs 7,000.

  1. ARs 5,93,000Correct
  2. BRs 6,23,000
  3. CRs 5,85,000
  4. DRs 6,07,000

Explanation

Provision reduces assets: -15,000. Prepaid rent is an omitted asset: +8,000. Corrected capital = 6,00,000 - 15,000 + 8,000 = Rs 5,93,000. Rs 6,07,000 gets the sign of the provision wrong.

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