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CMA Foundation · Fundamentals of Financial and Cost Accounting · Four Frameworks of Accounting and Forms of Organization

Verma Enterprises, a sole proprietorship, has these balances at year end: Capital ₹5,00,000 (opening), Drawings ₹60,000, Net profit for the year ₹1,40,000, and Additional capital introduced during the year ₹50,000. All other values are properly recorded. Using the accounting equation, if closing liabilities are ₹2,30,000, what are the closing total assets?

Total assets are ₹8,60,000. Closing capital equals opening capital ₹5,00,000 plus additional capital ₹50,000 plus profit ₹1,40,000 less drawings ₹60,000, which is ₹6,30,000. Adding liabilities of ₹2,30,000 under the accounting equation gives assets of ₹8,60,000.

  1. A₹8,60,000Correct
  2. B₹8,20,000
  3. C₹7,90,000
  4. D₹8,80,000

Explanation

Closing capital = 5,00,000 + 50,000 + 1,40,000 - 60,000 = 6,30,000. Assets = Capital + Liabilities = 6,30,000 + 2,30,000 = 8,60,000. Treating drawings as an addition gives 8,80,000+... a sign error; ignoring additional capital gives 8,10,000, so these are wrong.

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