alleryStart learning →Under the statement of affairs method, an increase in capital during the year is treated as:
AA loss for the year
BA profit for the year
CDrawings by the owner
DAdditional capital brought
Answer & Solution
Correct answer: B. A profit for the year
1. The method compares the capital, or net worth, at the beginning and at the end of a period.
2. Any increase in capital is taken as profit, while a decrease in capital is regarded as loss.
3. Due adjustment is first made for drawings and for any additional capital introduced during the year.
4. This is why the approach is also called the net worth method or the capital comparison method.
_Source: TN HSC Class 12 Accountancy (Samacheer Kalvi, Govt of Tamil Nadu), Unit 1 "Accounts from Incomplete Records", §1.7_
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