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ACCA Applied Skills · Financial Reporting · Preparation of single entity financial statements

Kiran, a sole trader, does not keep full records. Opening net assets were $48,000 and closing net assets are $63,000. During the year Kiran introduced additional capital of $10,000 and withdrew $14,000 for personal use. What was Kiran's profit for the year?

Profit is $19,000. The increase in net assets is $15,000, drawings of $14,000 are added back because they reduced net assets, and the $10,000 capital introduced is deducted because it was not earned profit.

  1. A$1,000
  2. B$5,000
  3. C$19,000Correct
  4. D$29,000

Explanation

Profit = closing net assets - opening net assets + drawings - capital introduced = 63,000 - 48,000 + 14,000 - 10,000 = $19,000. Check: 48,000 + 10,000 + 19,000 - 14,000 = 63,000. The $1,000 option wrongly subtracts drawings and adds capital, and $29,000 forgets to deduct the capital introduced.

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