ACCA Applied Knowledge · Financial Accounting · The main elements of financial statements
At 31 December, Orchid Co has total assets of $480,000 and total liabilities of $310,000. During the year the owners contributed $20,000 of new capital and withdrew no funds. Opening equity was $120,000. What profit did Orchid Co make for the year, assuming the only other equity movement was profit?
Profit is $30,000. Closing equity is assets less liabilities, $170,000. Equity rose by $50,000 from the opening $120,000, and $20,000 of that came from new capital, so the remaining $30,000 must be profit for the year.
- A$30,000Correct
- B$50,000
- C$170,000
- D$10,000
Explanation
Closing equity = 480,000 - 310,000 = 170,000. Movement = 170,000 - 120,000 = 50,000. Less capital introduced of 20,000 gives profit of 30,000. Option B forgets to deduct the capital introduced.
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