Question

Manu started business with a capital of Rs. 4,00,000 on 1^st June, 2023. He introduced additional capital of Rs. 75,000. He withdrew Rs. 8,000 per month during this period. If the closing capital as on 31^st December, 2023 was Rs. 4,50,000, calculate profit & loss for the year ended 31^st December, 2023.

Hint:

To determine profit or loss using the capital approach, adjust for additional capital introduced and drawings made during the period.

Answer 1

The formula to calculate profit/loss is:

Profit/Loss = Closing Capital − Opening Capital − Additional Capital + Drawings

Given:

• Opening Capital = Rs. 4,00,000
• Additional Capital = Rs. 75,000
• Withdrawals = Rs. 8,000 per month for 7 months (June to December):

\( \text{Drawings} = 8,000 \times 7 = Rs. 56,000 \)

• Closing Capital = Rs. 4,50,000

Calculation:

\( \text{Profit/Loss} = 4,50,000 - 4,00,000 - 75,000 + 56,000 \)

\( \text{Profit/Loss} = Rs. 31,000 \, \text{(Profit)}. \)