Skip to content

CA Foundation · Accounting · Final Accounts of Sole Proprietors

Kiran Traders had a net profit of Rs 1,00,000 as per books. Later it was found that: (i) a prepaid insurance of Rs 3,000 was treated as an expense in full; (ii) Rs 8,000 spent on repairs before using a newly bought machine, which was essential to bring it into working condition, was debited to Repairs; (iii) the proprietor's personal life insurance premium of Rs 7,000 was debited to Insurance expense. What is the corrected net profit?

Corrected net profit is Rs 1,18,000. All three errors had wrongly reduced profit: prepaid insurance of Rs 3,000, machine installation-type repairs of Rs 8,000 (capital expenditure) and personal premium of Rs 7,000 (drawings). Adding back Rs 18,000 to Rs 1,00,000 gives the answer.

  1. ARs 1,18,000Correct
  2. BRs 1,10,000
  3. CRs 1,02,000
  4. DRs 1,03,000

Explanation

(i) Prepaid amount is not an expense: add 3,000. (ii) Repairs to bring a machine into working condition are capital expenditure: add 8,000. (iii) Personal premium is drawings: add 7,000. Corrected profit = 1,00,000 + 3,000 + 8,000 + 7,000 = 1,18,000. Rs 1,10,000 arises if the personal premium is overlooked.

Did you get it right without looking?

One question tells you little. A timed set on Final Accounts of Sole Proprietors shows your real accuracy, how long you take and where you lose marks.

Practise Final Accounts of Sole ProprietorsFree diagnostic mock

More Final Accounts of Sole Proprietors questions