CA Foundation · Accounting · Theoretical Framework
Rao & Co. started the year with assets of ₹9,00,000 and liabilities of ₹3,00,000. During the year the owner introduced additional capital of ₹1,00,000 and withdrew ₹60,000 for personal use. At year-end, assets were ₹12,00,000 and liabilities ₹4,40,000. Using the accounting equation, what is the profit for the year?
Profit equals closing capital minus opening capital, less fresh capital introduced, plus drawings. That is 7,60,000 minus 6,00,000 minus 1,00,000 plus 60,000, which comes to ₹20,000.
- A₹1,60,000Correct
- B₹1,20,000
- C₹2,20,000
- D₹60,000
Explanation
Opening capital = 9,00,000 − 3,00,000 = 6,00,000. Closing capital = 12,00,000 − 4,40,000 = 7,60,000. Increase = 1,60,000. Adjust: profit = closing capital − opening capital − additional capital + drawings = 7,60,000 − 6,00,000 − 1,00,000 + 60,000 = 20,000. Check: this gives ₹20,000, so the option list must be reconsidered; the correct computation shows profit of ₹20,000, which is not listed.
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