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CMA Foundation · Fundamentals of Financial and Cost Accounting · Financial Statements of Sole Proprietorship

Rohan started the year with capital of Rs 4,00,000. During the year he introduced further capital of Rs 50,000, withdrew Rs 80,000 for personal use, and earned a net profit of Rs 1,20,000. What is his closing capital?

Closing capital is Rs 4,90,000. Start with opening capital of Rs 4,00,000, add the Rs 50,000 introduced and the Rs 1,20,000 profit, then deduct Rs 80,000 drawings. Drawings reduce the proprietor's capital, so adding them gives a wrong higher figure.

  1. ARs 4,90,000Correct
  2. BRs 5,10,000
  3. CRs 4,50,000
  4. DRs 5,70,000

Explanation

Closing capital = Opening 4,00,000 + Additional capital 50,000 + Net profit 1,20,000 - Drawings 80,000 = Rs 4,90,000. Rs 5,10,000 results from ignoring... actually from adding profit and capital but deducting only 60,000; the common error of Rs 5,70,000 comes from adding drawings instead of deducting them.

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