- April 1, 2022 at 3:39 pm #652516
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 .
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
Using this information, what is the trader’s profit for the year ended 30 June 20X7?
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: $126,000April 2, 2022 at 9:36 am #652557
I Can attempt the question like that I will say that the change in net assets contains the addition of capital+the profit for the year -the drawings ,so
88000-50000+88000=$126000 is that the correct approach of the question .
ThanksApril 3, 2022 at 4:24 pm #652640P2-D2Keymaster
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Yes, that’s correct but you will rarely see this in FR as it is more common in FFA when we look at incomplete records.
ThanksApril 3, 2022 at 9:44 pm #652669
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