Statement of Affairs Method :
The following procedures are adopted to calculate profit.
Step 1 → Ascertain opening capital: A statement of affairs at the beginning of the year is prepared to find out the amount of
capital in the beginning. A statement affairs is like a Balance sheet. The difference between assets and liabilities side represents “Opening Capital”.
Format of statement of affairs
Liabilities | Rs. | Assets | Rs. |
Sundry Creditors | xxxx | Cash in Hand | xxxx |
Bills Payable | xxxx | Cash at Bank | xxxx |
Outstanding Expenses | xxxx | Sundry Debtors | xxxx |
Bank Overdraft | xxxx | Bills Receivable | xxxx |
Capital (Balancing figure) | xxxx | Stock in trade | xxxx |
Prepaid Expenses | xxxx | ||
Fixed Assets | xxxx | ||
xxxx | xxxx |
Step 2 → Ascertainment Closing Capital: Prepare a statement of affairs (after all adjustments*) at the end of the accounting period, to ascertain closing capital.
Step 3 → Add the amount of drawings (whether in cash or in kind) to the closing capital.
Step 4 → Deduct the amount of Additional Capital introduced, from the above, to get Adjusted capital.
Step 5 → Ascertainment profit or loss by deducting opening capital from the adjusted closing capital.
* Adjustments: Depreciation, interest on capitals, interest on drawings, Provision for Bad debts etc.
Statement of Profit or Loss for the year ______
Closing Capital x x x
Add: Drawings x x x
x x x
Less: Additional capital introduced x x x
Adjusted closing capital x x x
Less: Opening capital x x x
Net Profit or loss for the year x x x
Note : If adjusted closing capital is more than opening capital = Profit
If adjusted closing capital is less than opening capital = Loss
Illustration :
Find out profit or loss from the following information.
Rs.
Opening Capital 4,00,000
Drawings 90,000
Closing Capital 5,00,000
Additional Capital during the year 30,000
Solution:
Statement of profit or loss
Rs.
Closing capital 5,00,000
Add: Drawings 90,000
5,90,000
Less: Additional Capital 30,000
Adjusted closing capital 5,60,000
Less: Opening capital 4,00,000
Profit for the year 1,60,000
Illustration :
Calculate the missing information from the following.
Profit made during the year Capital at the end Additional Capital introduced during the year Drawings Capital in the beginning
|
Rs. 4,800 ? 4,000 9,600 |
Solution:
Rs.
Closing capital (Balancing figure) 16,000
Add: Drawings 2,400
18,400
Less: Additional Capital 4,000
Adjusted closing capital 14,400
Less: Opening capital 9,600
Profit made during the year 4,800
Ans: Capital at the end Rs.16,000
Note:
Step 1 → Add Profit of Rs.4,800 with opening capital Rs.9,600 = Adjusted closing capital Rs.14,400.
Step 2 →Add Additional capital of Rs.4,000 with Adjusted closing capital Rs.14,400 = Rs.18,400
Step 3 →Deduct drawings Rs.2,400 from the total amount arrived (Step 2) Rs. 18,400 = Closing capital Rs.16,000.
Illustration : 3
Mr. Suresh started business with Rs.2,00,000 on 1st April 2003. His books are kept under single entry. On 31st March, 2004 his position ws as under:
Liabilities |
Rs. | Assets |
Rs. |
Sundry Creditors |
40,000 |
Cash in Hand |
6,000 |
Bills Payable |
5,000 |
Cash at Bank |
10,000 |
Outstanding creditors |
7,500 |
Furniture |
30,000 |
Plant & Machinery |
1,00,000 |
||
Sundry Debtors |
50,000 |
||
Stock |
90,000 |
||
Bills Receivable |
15,000 |
Ascertain the profit or loss made by Mr.Suresh for the year ended 31st March 2004.
Solution:
Calculation of closing capital:
Statement of affairs of Mr.Suresh as on 31.3.2004
Liabilities | Rs. | Assets | Rs. |
Sundry creditors | 40,000 | Cash in hand | 6,000 |
Bills payable | 5,000 | Cash at Bank | 10,000 |
Outstanding creditors | 7,500 | Furniture | 30,000 |
Closing capital(Balancing figure) | 2,48,500 | Plant & Machinery | 1,00,000 |
Sundry Debtors | 50,000 | ||
Stock | 90,000 | ||
Bills receivable | 15,000 |
3,01,000 | 3,01,000 |
Statement of profit or loss for the year ended 31.3.2004
Rs.
Closing capital |
2,48,500 |
Less: Opening capital |
2,00,000 |
Profit for the year |
48,500 |
Illustration :
Prakash keeps his books by ‘Single Entry System’. His position on 1.4.2003 and 31.3.2004 was as follows:
1.4.2003 | 31.3.2004 | |
Rs. | Rs. | |
Cash | 500 | 6,000 |
Bank Balance | 10,000 | 15,000 |
Stock | 7,000 | 10,000 |
Sundry Debtors | 30,000 | 40,000 |
Furniture | 6,000 | 6,000 |
Sundry Creditors | 6,000 | 12,000 |
He introduced an additional capital of Rs.8,000 during the financial year. He withdrew Rs.14,000 for domestic purpose. Find out the profit for the year ended 31.3.2004.
Solution:
i) Calculation of opening capital:
Statement of affairs of Mr.Prakash as on 1.4.2003
Liabilities |
Rs. | Assets |
Rs. |
Sundry creditors |
6,000 |
Cash |
500 |
Bank Balance |
10,000 |
||
Stock |
7,000 |
||
Sundry Debtors |
30,000 |
||
Furniture |
6,000 |
||
Opening Capital |
47,500 |
||
(Balancing figure) | |||
53,500 |
53,500 |
ii) Calculation of Closing Capital:
Statement of affairs of Mr.Prakash as on 31.3.2004
Liabilities |
Rs. | Assets |
Rs. |
Sundry creditors |
12,000 |
Cash |
6,000 |
Bank Balance |
15,000 |
||
Stock |
10,000 |
||
Sundry Debtors |
40,00 0 |
||
Furniture |
6,000 |
||
Closing capital |
65,000 |
||
(Balancing figure) | |||
77,000 |
77,000 |
Statement of Profit or Loss for the period ended 31.3.2004
Closing capital 65,000
Add: Drawings 14,000
79,000
Less: Additional capital 8,000
Adjusted closing capital 71,000
Less: Opening capital 47,500
Profit for the year 2003-2004 23,500
Illustration :
Mrs. Vanitha keeps her books on singly entry basis. Find out the profit or loss made for the period ending 31.3.2004.
Assets & Liabilities | 1.4.2003 | 31.3.2004 |
Rs. | Rs. | |
Bank Balance | 3,500 (Cr.) | 4,500 (Dr.) |
Cash on hand | 200 | 300 |
Stock | 3,000 | 4,000 |
Sundry Debtors | 8,500 | 7,600 |
Plant | 20,000 | 20,000 |
Furniture | 10,000 | 10,000 |
Sundry Creditors | 15,000 | 18,000 |
Mrs.Vanitha had withdrawn Rs.10,000 for her personal use and had introduced fresh capital of Rs.4,000. A provision of 5% on debtors is necessary. Write off depreciation on plant at 10% and furniture at 15%.
Solution:
i) Calculation of Opening Capital:
Statement of affairs of Mrs.Vanitha as on 1.4.2003
Liabilities |
Rs. | Assets |
Rs. |
Bank Balance (0/d) |
3,500 |
Cash on hand |
200 |
Sundry Creditors |
15,000 |
Stock |
3,000 |
Sundry Debtors |
8,500 |
||
Plant |
20,000 |
||
Opening capital |
23,200 |
Furnitue |
10,000 |
(Balancing figure) | |||
41,700 |
41,700 |
ii) Calculation of closing capital
Statement of affairs of Mrs.Vanitha as on 31.3.2004
Liabilities |
Rs. | Rs. | Assets | Rs. |
Rs. |
Sundry Creditors |
18,000 |
Bank balance |
4,500 |
||
Cash on hand |
300 |
||||
Stock |
4,000 |
||||
Sundry Debtors |
7,600 |
||||
Less: Provision |
__380 |
7,220 |
|||
Plant |
20,000 |
||||
Closing capital |
24,520 |
Less: Depreciation |
2,000 |
18,000 |
|
(Balancing figure) | Furniture |
10,000 |
|||
Less: Depreciation |
1,500 |
8,500 |
|||
42,520 |
42,520 |
Statement of Profit or loss for the period ended 31.3.2004
Rs.
Closing capital 24,520
Add: Drawings 10,000
34,520
Less: Additional capital 4,000
Adjusted closing capital 30,520
Less: Opening capital 23,200
Profit made during the year 7,320
Illustration 6:
Ram and Laxman are equal partners in a business in which the books are kept by single entry. On 1.4.2004 their position was as under:
Liabilities | Rs. | Assets |
Rs. |
Capital accounts: | Cash in hand |
5,000 |
|
Ram 2,50,000 | Cash at bank |
15,000 |
|
Laxman 2,50,000 |
5,00,000 |
Bills receivable |
30,000 |
Bills payable |
20,000 |
Stock |
1,00,000 |
Sundry Creditors |
30,000 |
Sundry Debtors |
25,000 |
Furniture |
1,25,000 |
||
Plant & Machinery |
2,50,000 |
||
5,50,000 |
5,50,000 |
On 31.3.2005 their position was as under:
Rs.
Cash in hand 2,000
Sundry Creditors 35,000
Sundry Debtors 30,000
Bills receivable 26,000
Cash at Bank 10,000
Stock 1,10,000
Bills payable 10,000
Plant & Machinery and furniture are to be depreciated by 10%.
Drawings : Ram 30,000
Laxman 25,000
Ascertain the profit for the year ended 31.3.2005.
Solution:
Calculation of closing capital:
Statement of affairs of Ram & Laxman as on 31.3.2005
Liabilities |
Rs. | Rs. | Assets | Rs. |
Rs. |
Sundry creditors |
35,000 |
Cash in hand |
2,000 |
||
Bills payable |
10,000 |
Cash at bank |
10,000 |
||
Sundry debtors |
30,000 |
||||
Bills receivable |
26,000 |
||||
Stock |
1,10,000 |
||||
Closing capital |
4,70,500 |
Plant & Machinery |
2,50,000 |
||
(Combined capital | Less: Depreciation |
25,000 |
2,25,000 |
||
ofRam & Laxman) | Furniture |
1,25,000 |
|||
Less: Depreciation |
12,500 |
1,12,500 |
|||
5,15,500 |
5,15,500 |
||||
|
|
Statement of profit or loss for the year ended 31.3.2005
Rs. | |
Combined closing capital |
4,70,500 |
Add: Drawings: | |
Ram 30,000 | |
Laxman 25,000
Adjusted closing capital
|
__55,000 |
5,25,500 |
|
Less: Combined opening capital |
5,00,000 |
Profit for the year |
25,500 |