Q.A trader's Statement of Affairs as on 1 April 2024 showed: Cash ₹5,000; Stock ₹18,000; Debtors ₹14,000; Furniture ₹9,000; Creditors ₹10,000. As on 31 March 2025, it showed: Cash ₹7,000; Stock ₹21,000; Debtors ₹17,000; Furniture (after depreciation) ₹8,100; Creditors ₹11,000; Bank Overdraft ₹2,000. During the year the trader introduced additional capital of ₹3,000 and withdrew ₹8,000 in cash, spread evenly through the year. Interest on drawings is to be charged at 6% per annum (assume interest for 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 adjustments, then add interest on drawings since it is treated as income of the business.

Capital at the beginning (1 April 2024):

Assets = 5,000 + 18,000 + 14,000 + 9,000 = ₹46,000.

Liabilities = Creditors ₹10,000.

Capital = 46,000 − 10,000 = ₹36,000.

Capital at the end (31 March 2025):

Assets = 7,000 + 21,000 + 17,000 + 8,100 = ₹53,100.

Liabilities = Creditors 11,000 + Bank Overdraft 2,000 = ₹13,000.

Capital = 53,100 − 13,000 = ₹40,100.

Interest on Drawings: since the ₹8,000 was drawn evenly throughout the year, the average period the money was outstanding is taken as 6 months (half the year), so Interest on Drawings = 8,000 × 6% × 6/12 = ₹240.

Statement of Profit or Loss for the year ended 31 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 …