CA Inter P1 · Chapter 1 · Question 4 of 8
Case: Megh Traders started the year with net assets (equity) of ₹5,00,000 and closed the year with net assets of ₹6,40,000. During the year the owner introduced additional capital of ₹50,000 and withdrew ₹30,000. Applying the financial capital maintenance concept in nominal monetary units, the profit for the year is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) ₹1,20,000
Explanation
Under financial capital maintenance, profit is the increase in net assets after excluding contributions from and distributions to owners. Profit = Closing net assets 6,40,000 - Opening net assets 5,00,000 - Capital introduced 50,000 + Drawings 30,000 = ₹1,20,000. Simply taking the change in net assets (1,40,000) ignores owner transactions.
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