Emeka, a furniture maker, keeps incomplete accounting records for his business. His financial position at the beginning and end of the year 2025 was as follows:
| Item | 1 January 2025 (₦) | 31 December 2025 (₦) |
|---|---|---|
| Equipment | 180,000 | 160,000 |
| Inventory | 60,000 | 85,000 |
| Trade Debtors | 40,000 | 55,000 |
| Cash at Bank | 20,000 | 30,000 |
| Trade Creditors | 50,000 | 40,000 |
| Accrued Electricity | — | 10,000 |
During 2025, Emeka introduced an additional ₦30,000 into the business as capital. He also withdrew ₦25,000 in cash and goods worth ₦15,000 for personal use.
Using the Statement of Affairs method, what is Emeka's net profit for the year ended 31 December 2025?
- ₦40,000Answer
- B₦20,000
- C₦60,000
- D₦25,000
Answer
The net profit for the year ended 31 December 2025 is ₦40,000.
The correct option is ₦40,000. Opening Capital is computed as total opening assets (₦300,000) minus opening liabilities (₦50,000) = ₦250,000. Closing Capital is computed as total closing assets (₦330,000) minus total closing liabilities including accrued electricity (₦50,000) = ₦280,000. Total drawings equal ₦40,000 (₦25,000 cash + ₦15,000 goods). Applying the formula: Net Profit = Closing Capital (₦280,000) + Drawings (₦40,000) - Capital Introduced (₦30,000) - Opening Capital (₦250,000) yields ₦40,000.
Step-by-Step Solution
Key Concept
Capital Comparison / Statement of Affairs Method
Estimated Time:1m 30s