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CMA Intermediate · Financial Accounting · Financial Statements from Incomplete Records

Rohan Mehta keeps no proper books. His capital at the start of the year, as per the Statement of Affairs, was Rs 4,00,000 and at the end of the year Rs 5,10,000. During the year he withdrew Rs 60,000 for personal use and brought in additional capital of Rs 20,000. What is his profit for the year under the Statement of Affairs method?

Profit is Rs 1,50,000. Increase in capital is Rs 1,10,000; adding drawings of Rs 60,000 gives Rs 1,70,000; deducting the fresh capital of Rs 20,000 gives Rs 1,50,000, because capital introduced is not earned profit.

  1. ARs 1,50,000Correct
  2. BRs 1,10,000
  3. CRs 1,30,000
  4. DRs 1,70,000

Explanation

Profit = Closing capital - Opening capital + Drawings - Fresh capital = 5,10,000 - 4,00,000 + 60,000 - 20,000 = Rs 1,50,000. Check: 4,00,000 + 20,000 + 1,50,000 - 60,000 = 5,10,000. Rs 1,10,000 ignores the drawings, adding nothing back, and treats capital introduced wrongly.

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