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 2,400 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