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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

Suresh Pharma Ltd. had opening capital of Rs 50,00,000 at the start of the year. During the year it introduced fresh capital of Rs 5,00,000, withdrew Rs 2,00,000 as drawings by promoters, and closing net assets (equity) were Rs 64,00,000. Applying the Framework's concept that profit is the increase in capital maintenance after excluding owner contributions and distributions, what is the profit for the year?

Profit is Rs 11,00,000. Under financial capital maintenance, profit is the rise in equity from Rs 50,00,000 to Rs 64,00,000, which is Rs 14,00,000, less fresh capital of Rs 5,00,000, plus drawings of Rs 2,00,000 added back.

  1. ARs 11,00,000Correct
  2. BRs 14,00,000
  3. CRs 9,00,000
  4. DRs 16,00,000

Explanation

Profit = closing equity - opening equity - contributions + distributions. = 64,00,000 - 50,00,000 - 5,00,000 + 2,00,000 = 11,00,000. Rs 14,00,000 ignores both owner transactions; Rs 9,00,000 subtracts drawings instead of adding them back.

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