A business has assets of Rs. 850,000 and liabilities of Rs. 275,000. What is its capital according to the statement of affairs?
Correct answer: A. Rs. 575,000
- A. Rs. 575,000
- B. Rs. 1,125,000
- C. Rs. 275,000
- D. Rs. 850,000
Explanation
Capital is calculated as assets minus liabilities. Therefore, Rs. 850,000 minus Rs. 275,000 equals Rs. 575,000. Adding the two figures would incorrectly calculate total claims rather than owner’s capital.
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About Incomplete Records
Incomplete records require profit and financial position to be reconstructed when a complete double-entry system is unavailable. Methods include statements of affairs, capital comparisons, control accounts, cash summaries and margin calculations to find missing sales, purchases, expenses, assets, liabilities and drawings, while distinguishing business profit from changes in capital.
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