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CA Foundation · Accounting · Final Accounts of Sole Proprietors

Patel Stores' net profit before adjustments is Rs 90,000. It then finds: (i) Rent received in advance of Rs 6,000 was treated as income of the year; (ii) Wages outstanding of Rs 4,000 were not recorded; (iii) Goods costing Rs 10,000 were taken by the proprietor for personal use and not recorded; (iv) Depreciation of Rs 7,000 on machinery was omitted. What is the corrected net profit?

Corrected net profit is Rs 73,000. Deduct rent received in advance (6,000), outstanding wages (4,000) and omitted depreciation (7,000) from 90,000. Goods taken for personal use are drawings, which affect capital, not profit, so they are not deducted as an expense.

  1. ARs 73,000Correct
  2. BRs 69,000
  3. CRs 79,000
  4. DRs 63,000

Explanation

Start 90,000. Rent in advance is not income: -6,000. Outstanding wages: -4,000. Depreciation: -7,000. That gives 73,000. The goods taken as drawings reduce stock or purchases, and the drawing is not an expense, so profit is unaffected if purchases were properly recorded. Option D wrongly deducts the drawings of 10,000 as well.

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