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ACCA Applied Knowledge · Financial Accounting · Double-entry bookkeeping principles including the maintenance of accounting records

At 1 January, Dorn Co had assets of $210,000 and liabilities of $90,000. During the year it made a profit of $45,000, the owners paid in $20,000 of new capital and drawings were $15,000. Liabilities at 31 December were $110,000. What were total assets at 31 December?

Total assets are $280,000. Opening equity of $120,000 increases by profit $45,000 and capital $20,000 and decreases by drawings $15,000 to $170,000. Adding closing liabilities of $110,000 gives assets, since assets equal equity plus liabilities.

  1. A$260,000
  2. B$270,000
  3. C$280,000Correct
  4. D$290,000

Explanation

Opening equity = 210,000 - 90,000 = 120,000. Closing equity = 120,000 + 45,000 + 20,000 - 15,000 = 170,000. Assets = equity + liabilities = 170,000 + 110,000 = 280,000. Option $290,000 ignores drawings; $260,000 deducts the capital introduced instead of adding.

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