Get ready modules – FR

Hello Sir,

In the following question can you please clarify how they got the profit of the year, as what I understand is that the net assets should equal the equity +Retained earnings +reserve .

Thanks,
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The following information is available for a sole trader who keeps no accounting records:

$
Net business assets at 1 July 20X6 186,000
Net business assets at 30 June 20X7 274,000

During the year ended 30 June 20X7:
Cash drawings by proprietor 68,000
Additional capital introduced by proprietor 50,000
Business cash used to buy a car for the proprietor’s wife, who takes no part in the business

20,000
Using this information, what is the trader’s profit for the year ended 30 June 20X7?
Select one:
$50,000
$86,000
$90,000
$126,000

Using the balance sheet equation: Profit = Change in net assets – capital introduced + drawings i.e. (274,000 – 186,000) – 50,000 + (68,000 + 20,000) = $126,000

The correct answer is: $126,000