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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

Opening net assets of Narmada Foods Ltd. were ₹40,00,000. During the year, shareholders brought in fresh capital of ₹6,00,000 and the company distributed dividends of ₹4,00,000. Closing net assets were ₹52,00,000. Under the Framework's capital maintenance concept, what profit did the company earn for the year, based on financial capital maintenance in nominal monetary units?

Profit is ₹10,00,000. Net assets rose by ₹12,00,000, but ₹6,00,000 of that came from shareholders' fresh capital, which is not profit, and ₹4,00,000 was distributed as dividend, which must be added back. So 12 − 6 + 4 equals ₹10,00,000.

  1. A₹10,00,000Correct
  2. B₹12,00,000
  3. C₹8,00,000
  4. D₹6,00,000

Explanation

Profit equals closing net assets less opening net assets, excluding owner contributions and adding back distributions. Increase = 52,00,000 − 40,00,000 = 12,00,000. Adjust: less capital introduced 6,00,000 plus dividends 4,00,000 gives 12,00,000 − 6,00,000 + 4,00,000 = 10,00,000. Option ₹12,00,000 ignores owner transactions.

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