ExpertMedium2 marksMultiple Choice
ACCA · Question 26 · Preparing Basic Financial Statements
A sole trader's net assets were $120,000 at the beginning of the year and $145,000 at the end of the year. During the year, the trader introduced $10,000 of new capital and took drawings of $25,000. What was the net profit or loss for the year?
A sole trader's net assets were $120,000 at the beginning of the year and $145,000 at the end of the year. During the year, the trader introduced $10,000 of new capital and took drawings of $25,000. What was the net profit or loss for the year?
Answer options:
A.
Net profit of $10,000
B.
Net profit of $40,000
C.
Net loss of $10,000
D.
Net profit of $60,000
How to approach this question
Use the accounting equation: Closing Net Assets = Opening Net Assets + Capital Introduced + Profit - Drawings. Rearrange to solve for Profit.
Full Answer
B.Net profit of $40,000✓ Correct
The relationship between opening and closing net assets is: Closing Net Assets = Opening Net Assets + Capital Introduced + Net Profit - Drawings.
$145,000 = $120,000 + $10,000 + Net Profit - $25,000.
$145,000 = $105,000 + Net Profit.
Net Profit = $145,000 - $105,000 = $40,000.
Common mistakes
Deducting drawings from the difference instead of adding them back.
Practice the full ACCA FA — Financial Accounting Practice Exam 4
65 questions · hints · full answers · grading
More questions from this exam
Q01Global Water Initiative, an international NGO, receives a restricted grant of $500,000 specifical...MediumQ02MetroGrid Water, a public utility company, is preparing its annual financial statements. Which of...EasyQ03EuroTrade Logistics operates across multiple European borders. Which TWO of the following are pri...MediumQ04CloudSync Inc, a tech startup, is developing a new proprietary algorithm. The directors want to c...MediumQ05GreenHarvest Farms changes its depreciation method for tractors from straight-line to reducing ba...Medium