CSEET · Fundamentals of Accounting · Basic Concepts and Principles of Accounting
Sharma Traders' net assets were ₹4,00,000 at the start of the year and ₹5,10,000 at the end. During the year the proprietor introduced additional capital of ₹30,000 and withdrew ₹50,000 for personal use. Under the financial capital maintenance concept in nominal monetary units, what is the profit for the year?
Profit is ₹1,30,000. Under financial capital maintenance, profit is the rise in net assets after excluding owner contributions and distributions. The rise is ₹1,10,000; adding back drawings of ₹50,000 and deducting capital introduced of ₹30,000 gives ₹1,30,000.
- A₹1,10,000
- B₹1,30,000Correct
- C₹80,000
- D₹1,90,000
Explanation
Profit is the closing net assets less opening net assets after excluding distributions to and contributions from owners. Increase = 5,10,000 - 4,00,000 = 1,10,000. Add back drawings of 50,000 and deduct capital introduced of 30,000: 1,10,000 + 50,000 - 30,000 = 1,30,000. Taking only the increase ignores the owner flows, and subtracting drawings gives the wrong sign.
Did you get it right without looking?
One question tells you little. A timed set on Basic Concepts and Principles of Accounting shows your real accuracy, how long you take and where you lose marks.
More Basic Concepts and Principles of Accounting questions
- Mehta Traders sold goods on credit to Rohan for ₹40,000. Under the traditional rules of debit and credit, which pair of accounts is correctl…
- Which statement best reflects how the Framework describes profit in relation to capital maintenance?
- Which of the following is a feature that distinguishes management accounting from financial accounting?
- Mehta & Co. holds closing stock whose cost is ₹1,80,000 and whose net realisable value is ₹1,50,000. It values the stock at ₹1,50,000 and re…
- Which one of the following statements about the Framework for the Preparation and Presentation of Financial Statements (ICAI) is correct?
- A firm's books show: Capital Rs 5,00,000, Drawings Rs 40,000, Creditors Rs 1,20,000 and Bank loan Rs 2,00,000. Using the accounting terminol…