CA Foundation · Accounting · Theoretical Framework
Kulkarni & Co. had the following balances at the year-end: Opening capital ₹6,00,000. During the year the owner introduced additional capital of ₹1,00,000 and withdrew ₹70,000 for personal use. Net profit for the year was ₹2,20,000. What is the closing capital?
Closing capital is ₹8,50,000. It is opening capital of ₹6,00,000 plus ₹1,00,000 introduced and net profit of ₹2,20,000, less drawings of ₹70,000. Drawings reduce the owner's equity, so they must be deducted and not added.
- A₹8,50,000Correct
- B₹8,90,000
- C₹7,80,000
- D₹9,90,000
Explanation
Closing capital = opening capital + additions + profit - drawings = 6,00,000 + 1,00,000 + 2,20,000 - 70,000 = 8,50,000. Adding the drawings instead of deducting gives ₹9,90,000, which is wrong. Ignoring the capital introduced gives ₹7,50,000 and ignoring profit is also wrong.
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