Question

If the capital at the end of the year is Rs. 40,000, the capital introduced during the year is Rs. 30,000, the year’s drawings are Rs. 20,000, and the year’s loss is Rs. 60,000, so the capital at the start of the year was:

a)10,000
b)80,000
c)70,000
d)90,000

Answer 1

To calculate the capital at the start of the year, adjust the ending capital with the year's transactions. The calculation shows a negative capital at the start, indicating the business had more losses and drawings than capital and profit, leading to negative starting capital.

Step-by-step explanation:

To find the capital at the start of the year, we need to adjust the ending capital by considering the transactions during the year. We start with the ending capital and adjust for capital introduced, drawings, and the year’s loss. The formula for this calculation is:

Beginning Capital = Ending Capital + Drawings - Capital Introduced - Year’s Loss

So, if the ending capital is Rs. 40,000, drawings are Rs. 20,000, capital introduced is Rs. 30,000, and the year’s loss is Rs. 60,000, the calculation would be:

Beginning Capital = Rs. 40,000 + Rs. 20,000 - Rs. 30,000 - Rs. 60,000

This simplifies to:

Beginning Capital = Rs. -30,000 (negative because of the loss)

The correct answer is that the capital at the start of the year was not listed among the provided options since it resulted in a negative amount, which indicates that the business had to cover losses from previous capital or required additional investment to balance the capital account.