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CA Foundation · Accounting · Accounts from Incomplete Records

Mohan, who keeps incomplete records, started the year with assets of Rs 5,00,000 and liabilities of Rs 1,50,000. At year end, assets were Rs 6,40,000 and liabilities Rs 1,20,000. He withdrew Rs 50,000 during the year. Later it was found that a machine worth Rs 30,000 was gifted to the business by his father and included in closing assets without any capital entry. Interest on capital and drawings is ignored. The correct profit for the year is:

Profit is Rs 1,90,000 after treating the gift as capital introduced.

  1. ARs 1,50,000
  2. BRs 1,20,000Correct
  3. CRs 1,00,000
  4. DRs 70,000

Explanation

Opening capital = 5,00,000 − 1,50,000 = 3,50,000. Closing capital = 6,40,000 − 1,20,000 = 5,20,000. Profit before adjustment = 5,20,000 − 3,50,000 + 50,000 = 1,20,000. The gift is added to capital, so subtract 30,000: 90,000... recomputing: 1,20,000 − 30,000 = Rs 90,000, which is not offered, so verify. Increase = 1,70,000; plus drawings 50,000 = 2,20,000; less gifted capital 30,000 = 1,90,000. The correct figure is Rs 1,90,000, not among options.

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