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CA Foundation · Accounting · Accounts from Incomplete Records

Anita started the year with capital of Rs 4,00,000 and ended with capital of Rs 5,50,000 as per her statements of affairs. During the year she withdrew Rs 90,000 for personal use and introduced further capital of Rs 50,000. What was her profit for the year under the net worth (statement of affairs) method?

Under the net worth method, profit equals the change in capital adjusted for drawings and fresh capital. Capital increased by Rs 1,50,000; adding back drawings of Rs 90,000 and deducting the Rs 50,000 introduced gives a profit of Rs 1,90,000 for the year.

  1. ARs 1,90,000Correct
  2. BRs 2,90,000
  3. CRs 1,10,000
  4. DRs 1,50,000

Explanation

Profit = closing capital - opening capital + drawings - additional capital. This is 5,50,000 - 4,00,000 + 90,000 - 50,000 = 1,90,000. Rs 1,50,000 is only the increase in capital and ignores drawings, which reduced capital, and fresh capital, which inflated it.

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