Q.A trader's Statement of Affairs as on 1st April 2024 showed: Cash ₹4,500; Stock ₹15,000; Debtors ₹12,000; Furniture ₹8,000; Creditors ₹9,000. As on 31st March 2025, it showed: Cash ₹6,500; Stock ₹18,000; Debtors ₹14,500; Furniture (after depreciation) ₹7,200; Creditors ₹10,500; Bank Overdraft ₹1,500. During the year the trader introduced additional capital of ₹2,500 and withdrew ₹6,000 in cash, spread evenly through the year. It was later discovered that Outstanding Wages of ₹800 had been omitted from the closing Statement of Affairs. Interest on Drawings is to be charged at 5% per annum, assuming an average period of 6 months on the total drawings. Ascertain the Net Profit for the year.

Find capital at both dates, compute profit before further adjustments, then deduct the outstanding wages omitted from the closing statement and add interest on drawings.

Capital at the beginning (1st April 2024):

Assets = 4,500 + 15,000 + 12,000 + 8,000 = ₹39,500.

Liabilities = Creditors ₹9,000.

Capital = 39,500 − 9,000 = ₹30,500.

Capital at the end (31st March 2025, as originally prepared):

Assets = 6,500 + 18,000 + 14,500 + 7,200 = ₹46,200.

Liabilities = Creditors 10,500 + Bank Overdraft 1,500 = ₹12,000.

Capital = 46,200 − 12,000 = ₹34,200.

A Bank Overdraft is a genuine outside liability, exactly like Creditors, and must be included on the liabilities side of the closing Statement of Affairs — omitting it would overstate the closing capital, and hence overstate profit.

Statement of Profit for the year ended 31st March 2025

Two common errors here: forgetting to include the Bank Overdraft as a liability in the closing Statement of Affairs (which would wrongly inflate closing capital and profit), and DEDUCTING Interest on Drawings instead of ADDING it — interest on drawings is a notional c …