Yakubu, a wholesale grain distributor, maintains single-entry records for his business. On… — JAMB UTME

Yakubu, a wholesale grain distributor, maintains single-entry records for his business. On 1 January 2025, his financial records showed Motor Vehicle valued at $\text{₦400,000}$ , Inventory of $\text{₦150,000}$ , Trade Debtors of $\text{₦100,000}$ , Cash at Bank of $\text{₦70,000}$ , Prepaid Insurance of $\text{₦10,000}$ , Trade Creditors of $\text{₦120,000}$ , and Accrued Rent of $\text{₦10,000}$ .

On 31 December 2025, his assets and liabilities before adjustments were Motor Vehicle $\text{₦400,000}$ , Inventory $\text{₦180,000}$ , Trade Debtors $\text{₦120,000}$ , Cash at Bank $\text{₦110,000}$ , Prepaid Insurance $\text{₦16,000}$ , Trade Creditors $\text{₦90,000}$ , and Accrued Salaries $\text{₦15,000}$ .

Additional adjustments required at year-end:
- Provide $10\%$ depreciation per annum on Motor Vehicle.
- Create a $5\%$ provision for doubtful debts on Trade Debtors.

During the year, Yakubu withdrew $\text{₦4,000}$ cash per month and taken goods worth $\text{₦12,000}$ for personal use. He also introduced additional capital of $\text{₦50,000}$ from personal funds into the business.

What is the net profit of the business for the year ended 31 December 2025?

₦85,000Answer
B
₦65,000
C
₦73,000
D
₦131,000

Answer

The net profit for the year ended 31 December 2025 is ₦85,000.

The correct answer of ₦85,000 is obtained by first calculating Opening Capital (₦730,000 assets minus ₦130,000 liabilities = ₦600,000) and adjusted Closing Capital (₦780,000 assets after 10% motor vehicle depreciation and 5% doubtful debts provision minus ₦105,000 liabilities = ₦675,000). Adding total drawings of ₦60,000 (₦48,000 cash plus ₦12,000 goods) and deducting additional capital of ₦50,000 yields adjusted closing capital of ₦685,000. Subtracting opening capital of ₦600,000 gives a net profit of ₦85,000.

Step-by-Step Solution

Calculate Opening Capital as of 1 January 2025

Opening Capital = ₦600,000

Total Opening Assets =

\text{₦400,000} + \text{₦150,000} + \text{₦100,000} + \text{₦70,000} + \text{₦10,000} = \text{₦730,000}

. Total Opening Liabilities =

\text{₦120,000} + \text{₦10,000} = \text{₦130,000}

. Opening Capital =

\text{₦730,000} - \text{₦130,000} = \text{₦600,000}

Apply year-end adjustments to closing assets and calculate Closing Capital as of 31 December 2025

Closing Capital = ₦675,000

Adjusted Motor Vehicle =

\text{₦400,000} - (10\% \times \text{₦400,000}) = \text{₦360,000}

. Adjusted Trade Debtors =

\text{₦120,000} - (5\% \times \text{₦120,000}) = \text{₦114,000}

. Total Closing Assets =

\text{₦360,000} + \text{₦180,000} + \text{₦114,000} + \text{₦110,000} + \text{₦16,000} = \text{₦780,000}

. Total Closing Liabilities =

\text{₦90,000} + \text{₦15,000} = \text{₦105,000}

. Closing Capital =

\text{₦780,000} - \text{₦105,000} = \text{₦675,000}

Calculate Total Drawings during the year

Total Drawings = ₦60,000

Cash drawings =

12 \times \text{₦4,000} = \text{₦48,000}

. Goods drawn =

\text{₦12,000}

. Total drawings =

\text{₦48,000} + \text{₦12,000} = \text{₦60,000}

Apply the Statement of Affairs profit determination formula

Net Profit = ₦85,000

\text{Net Profit} = \text{Closing Capital} + \text{Drawings} - \text{Capital Introduced} - \text{Opening Capital} = \text{₦675,000} + \text{₦60,000} - \text{₦50,000} - \text{₦600,000} = \text{₦85,000}

Key Concept

Statement of Affairs Method for Capital and Profit Determination

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