Skip to content

CMA Foundation · Fundamentals of Financial and Cost Accounting · Financial Statements of Sole Proprietorship

Arjun's books show: Capital Rs 6,00,000 at the start of the year, drawings Rs 90,000, and net profit for the year Rs 1,50,000 before adjusting for an unrecorded item. Later it is found that rent of Rs 20,000 for the last month of the year is outstanding and unrecorded, and interest on a fixed deposit of Rs 12,000 has accrued but is not recorded. He also paid Rs 30,000 during the year as premium on his personal life insurance from the business bank account and debited it to Insurance expense; this is included in the profit figure above. What is his closing capital after all corrections?

Closing capital is Rs 6,52,000. Corrected profit is Rs 1,72,000 after deducting outstanding rent, adding accrued interest and adding back the personal insurance. Drawings rise to Rs 1,20,000 because that premium is personal. Capital = 6,00,000 + 1,72,000 - 1,20,000.

  1. ARs 6,72,000Correct
  2. BRs 6,60,000
  3. CRs 6,52,000
  4. DRs 6,42,000

Explanation

Corrected profit = 1,50,000 - 20,000 (outstanding rent) + 12,000 (accrued interest) + 30,000 (personal insurance wrongly charged, to be treated as drawings) = 1,72,000. Drawings = 90,000 + 30,000 = 1,20,000. Closing capital = 6,00,000 + 1,72,000 - 1,20,000 = Rs 6,52,000.

Did you get it right without looking?

One question tells you little. A timed set on Financial Statements of Sole Proprietorship shows your real accuracy, how long you take and where you lose marks.

Practise Financial Statements of Sole ProprietorshipFree diagnostic mock

More Financial Statements of Sole Proprietorship questions