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Profit

Jaiveer Singh Rawat (Learner) (130 Points)

01 February 2013

Hi Friends

One of my friend asked me a question which seems not answerable by me. Please help :

On 1st April, 2008, Chhotu started business with an initial Capital of Rs.70,000. On 1st October, 2008, he introduced additional capital of Rs.40,000. On 7th of every month, he withdraws Rs.5,000 for household expenses. On 31st March, 2009 his Assets and Liabilities were Rs.2,00,000 and Rs.70,000 respectively.

Ascertain the profit earned by Chhotu during the year ended 31st March, 2009.

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6 Replies

(Guest)

In my opinion the question itself is wrong.

As Chotu started his business with 70000 capital means his opening balance sheet would have 70000 libilities (capital) and 70000 assets (cash).

If we assume that he didnt do any business activity then the balance sheet position will remain same as additional capital 40000 introduced by him is withdrawn.

if you say on 31st march, liabilities excluding capital is 70000. then the question seems correct then the profit will be (200000 - 70000 - capital 70000) 60000.

But the wording of the question is vague. we use double entry system hence either you pass a correct entry or pass incorrect entry, finally your balance sheet has to be tallied.

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Deepak Gupta (CA Student) (15922 Points)
Replied 01 February 2013

Originally posted by : Jaiveer Singh Rawat
	Hi Friends One of my friend asked me a question which seems not answerable by me. Please help : On 1st April, 2008, Chhotu started business with an initial Capital of Rs.70,000. On 1st October, 2008, he introduced additional capital of Rs.40,000. On 7th of every month, he withdraws Rs.5,000 for household expenses. On 31st March, 2009 his Assets and Liabilities were Rs.2,00,000 and Rs.70,000 respectively. Ascertain the profit earned by Chhotu during the year ended 31st March, 2009.

Question from IPCC Group 1 Accounting Paper of Nov, 2009

Click on the below mentioned link, to see the suggested answer by ICAI.

https://220.227.161.86/18518sugg_ans_ipcc_grp1_nov09_paper1.pdf

Jaiveer Singh Rawat (Learner) (130 Points)
Replied 01 February 2013

Thanks gaurav....I too considered it as wrong or vague but as per him it was asked in IPCC Nov. 2009......

Didn't had any clue as according to me it should have profit of 80,000 if we assume that liablities 70000 are excluding capital......

Please correct me if i am wrong.....!!

Jaiveer Singh Rawat (Learner) (130 Points)
Replied 01 February 2013

Thanks Deepak for the favour........Means 80000 is the right profit i was thiking about.....

(Guest)

yes man 80000/- is correct,.......... i thought that withdrawals are from oct 2008 onwards........but the question is correct..............thanks deepak for correcting me...........