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A trader's closing capital is Rs 3,50,000 and opening capital Rs 2,00,000. He introduced Rs 70,000 as additional capital and withdrew Rs 40,000. His profit is:
ARs 1,50,000
BRs 1,80,000
CRs 1,20,000
DRs 2,20,000
Answer & Solution
Correct answer: C. Rs 1,20,000
1. Start from the closing capital of Rs 3,50,000.
2. Add the drawings of Rs 40,000, since they had reduced the closing capital, giving Rs 3,90,000.
3. Subtract the additional capital of Rs 70,000, since it had increased the closing capital, giving an adjusted closing capital of Rs 3,20,000.
4. Subtract the opening capital of Rs 2,00,000 to get a profit of Rs 1,20,000.
5. Option A is what you get by ignoring both adjustments, which is exactly the trap the two adjustments are designed to catch.
_Source: TN HSC Class 12 Accountancy (Samacheer Kalvi, Govt of Tamil Nadu), Unit 1 "Accounts from Incomplete Records", Illustration 1_
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