Sid is a sole proprietor. He is into the business of distributing stationeries or writing materials to schools and colleges. He earns a revenue of Rs. 6 Lacs a year. Now, Sid has a bad business habit, he mixes up his personal expenses and business expenses. He withdraws money from his bank account meant for his business to meet his personal expenses.
Now, Sid has reached the year end 31st March 2018 and is unsure of the profits he actually made during the year. He maintains a record of few transactions made during the year. He wants to know how he performed in the previous year April 2017 to March 2018, when compared to his friend Agu, who is also into the same business. He provides you, the following information.
See if you can find out the profits made by him.
Capital Balance at the beginning of the year (1.4.2017) - Rs. 10,40,700
Capital Balance at the end of the year (31.3.2018) - Rs.11,20,000
Drawings made during the year to meet his personal expenses:
1) Restaurant Bills paid from business account - Rs. 8000
2) Purchased Jewellery for his wife - Rs.25000
3) Purchased toys for his 2 year old son from Hamleys - Rs.8500
One of his fixed deposit matured in the month of December for Rs.50,000 and he invested it in his business.
Now, How do you arrive at the profit?
Sid's accountant, adds up his current year profit to the opening capital to arrive at the closing capital. In case if there are any drawings, he deducts it from the total of the two( Opening + Profits).
Also, in case if he introduces new capital, he adds up that too, to arrive at the closing capital.
Working backwards, arrive at the profits made by Sid during the year. Use the same formula as given in the image below.
Note: All of his personal expenses like purchase of his wife's jewellery, restaurant bills, and purchase of toys for his son are treated as drawings.
Let us know if you get the correct answer as below
Answer: Profits made during the year 2017-18 - Rs.70,800
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