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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

At 31 March, Iyer Traders Ltd. reports assets of ₹50,00,000 and liabilities of ₹32,00,000 at the start of the year, and during the year the owners brought in fresh capital of ₹3,00,000 and withdrew ₹1,00,000 as dividends. Closing assets are ₹62,00,000 and closing liabilities ₹38,00,000. Applying the capital maintenance concept (financial capital, no price-level change), what is the profit for the year?

Profit is ₹4,00,000. Opening equity is ₹18,00,000 and closing equity ₹24,00,000, an increase of ₹6,00,000. Of this, net owner contributions of ₹2,00,000 (capital introduced ₹3,00,000 less dividends ₹1,00,000) are not profit, leaving ₹4,00,000 earned.

  1. A₹6,00,000Correct
  2. B₹4,00,000
  3. C₹8,00,000
  4. D₹7,00,000

Explanation

Opening equity = 18,00,000; closing equity = 24,00,000. Increase = 6,00,000. Remove net owner contributions: 6,00,000 - (3,00,000 - 1,00,000) = 4,00,000. So profit = ₹4,00,000. Option ₹6,00,000 ignores the contributions and is wrong.

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