CA Inter P1 · Chapter 1 · Question 5 of 8
Case: An entity had opening net assets of ₹8,00,000 and closing net assets of ₹9,20,000, with no capital introduced or withdrawn. The general price index moved from 120 at the start of the year to 132 at the end. Under the financial capital maintenance concept measured in units of constant purchasing power, the profit for the year is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) ₹40,000
Explanation
Opening capital must first be restated to end-of-year purchasing power: 8,00,000 x 132/120 = ₹8,80,000. Profit = Closing net assets 9,20,000 - restated opening capital 8,80,000 = ₹40,000. The balance of the nominal increase (1,20,000 - 40,000 = 80,000) is a capital maintenance adjustment forming part of equity, not profit.
More Introduction to Accounting Standards, Framework and Applicability MCQs
- Q7Case: Sarthak Components Ltd qualifies as a Small and Medium-sized Company (SMC) under the Companies (Accounting Standards) Rules. Which…
- Q8Under the ICAI Framework, assets carried at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent…
- Q1Under the Framework for the Preparation and Presentation of Financial Statements issued by ICAI, information is said to possess a…
- Q2Which of the following is NOT one of the fundamental accounting assumptions referred to in AS 1, Disclosure of Accounting Policies?
- Q3Case: The board of Vasundhara Textiles Ltd passed a resolution on 15 March 20X1 to replace its dyeing machines during the next financial…