CA Foundation · Accounting · Theoretical Framework
Kavita Traders began the year with capital of ₹6,00,000. During the year, the proprietor introduced additional capital of ₹1,00,000 and withdrew ₹70,000 for personal use. The year-end liabilities were ₹2,50,000 and the year-end assets were ₹10,00,000. What was the profit for the year?
The profit is ₹1,20,000. Closing capital is assets less liabilities, ₹7,50,000. Adding drawings of ₹70,000 and subtracting opening capital of ₹6,00,000 and fresh capital of ₹1,00,000 leaves the profit. Ignoring drawings would wrongly give ₹50,000.
- A₹20,000
- B₹50,000
- C₹1,20,000Correct
- D₹1,90,000
Explanation
Closing capital = Assets − Liabilities = 10,00,000 − 2,50,000 = 7,50,000. Profit = Closing capital − Opening capital − Additional capital + Drawings = 7,50,000 − 6,00,000 − 1,00,000 + 70,000 = 1,20,000. Check: 6,00,000 + 1,00,000 + 1,20,000 − 70,000 = 7,50,000. Ignoring the drawings gives ₹50,000, which is wrong.
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