Question

Question 1.
Following information of an accounting year is given:
Opening Capital ₹ 60,000; Drawings ₹ 5,000; Capital added during the year ₹ 10,000 and Closing Capital ₹ 90,000. Calculate the Profit and Loss for the year.

Answer 1

Profit = closing capital + drawings- additional capital-opening capital

Answer 2

The Profit and Loss for the period amounts to Rs 25,000

Explanation:

The profit and loss for the period is computed as:

• First we will compute the adjusted closing capital as:

Adjusted closing capital = Closing Capital + Drawings - Additional or extra capital during the period

where

Closing Capital is Rs 90,000

Drawings is Rs 5,000

Capital added during the period is Rs 10,000

• Putting the values above:

Adjusted closing capital = Rs 90,000 + Rs 5,000 - Rs 10,000

= Rs 95,000 - Rs 10,000

= Rs 85,000

• Now, computing the Profit and Loss as:

Profit and Loss = Adjusted closing capital - Opening Capital

Profit and Loss = Rs 85,000 - Rs 60,000

= Rs 25,000