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Difficulty: EasyPreparation of Final Accounts from Incomplete Records

A sole trader who maintains incomplete accounting records presents the following financial summary for the year ended 31st December 2025:

- Opening Capital: ₦150,000\text{₦}150,000
- Additional Capital Introduced: ₦30,000\text{₦}30,000
- Drawings during the year: ₦20,000\text{₦}20,000
- Closing Capital: ₦210,000\text{₦}210,000

What is the net profit of the business for the year in Naira (₦\text{₦})?

Answer: 50000 ₦

Answer

The net profit for the year is ₦50,000.
Under the statement of affairs (capital comparison) method, profit is calculated by adding drawings back to the closing capital and deducting both the additional capital introduced and the opening capital: ₦210,000+₦20,000−₦30,000−₦150,000=₦50,000\text{₦}210,000 + \text{₦}20,000 - \text{₦}30,000 - \text{₦}150,000 = \text{₦}50,000.

Step-by-Step Solution

1
Identify the formula for determining net profit under incomplete records using the capital comparison method.
Net Profit=Closing Capital+Drawings−Additional Capital−Opening Capital\text{Net Profit} = \text{Closing Capital} + \text{Drawings} - \text{Additional Capital} - \text{Opening Capital}
Drawings reduce capital and must be added back to find true earned profit, while additional capital increases equity without coming from trading performance and must be deducted.
2
Insert the given amounts into the formula.
Net Profit=₦210,000+₦20,000−₦30,000−₦150,000\text{Net Profit} = \text{₦}210,000 + \text{₦}20,000 - \text{₦}30,000 - \text{₦}150,000
To isolate the profit generated purely from business operations during the year.
3
Perform the calculation.
Net Profit=₦50,000\text{Net Profit} = \text{₦}50,000
₦230,000\text{₦}230,000 total adjusted closing capital minus ₦180,000\text{₦}180,000 total adjusted starting capital yields ₦50,000\text{₦}50,000 net profit.

Key Concept

Statement of Affairs Method (Capital Comparison)
Estimated Time:1m 0s
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Preparation of Final Accounts from Incomplete Records

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