Question

X started business with capital 120000 in 1st April 2016. He took a bank loan of 40000. On 31st March 2017 his assets were 240000 and creditors were 30000. Loan has not been paid so far. Determine his capital at the end of the year and profit earned.

Answer 1

Capital= assets -liabilities
=240000-30000-40000
=170000=capital at the end of yr
profit =170000-120000
=50000

Answer 2

His capital at the end of the year and profit earned is $170,000 and $50,000 respectively.

Explanation:

The computation is shown below:

As we know that

Total assets = Total liabilities + stockholder equity

where,

Total assets = $240,000

Total liabilities = Bank loan + creditors

                        = $40,000 + $30,000

                        = $70,000

So, the ending capital would b

= $240,000 - $70,000

= $170,000

And, the profit would be

= Ending capital - opening capital

= $170,000 - $120,000

= $50,000

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