Question

Mr. A started business with Rs. 80,000 cash and a machine worth Rs. 90,000 on 1 April 2023. He also took a loan of Rs. 1,00,000 on 1st October and repaid 1/10th of the loan amount on 1 January 2024. On 31st March 2024 he had a machine worth Rs. 88,000 and the balance of cash amount. The interest on the entire loan amount is still pending to be paid off. Find out the profit and loss earned during the year.

Answer 1

To calculate the profit or loss earned during the year, we need to consider the initial investment, any additional capital introduced or withdrawn, as well as the change in the value of assets and liabilities. Here's how we can calculate the profit or loss:

Initial Investment:

- Cash: Rs. 80,000

- Machine: Rs. 90,000

Total Initial Investment: Rs. 80,000 + Rs. 90,000 = Rs. 1,70,000

Additional Capital Introduced:

- Loan Taken: Rs. 1,00,000

Additional Capital: Rs. 1,00,000

Change in Assets:

- Value of Machine on 31st March 2024: Rs. 88,000

Change in Asset Value: Rs. 88,000 - Rs. 90,000 = -Rs. 2,000 (Loss)

Change in Liabilities:

- Repaid 1/10th of the Loan Amount on 1st January 2024: Rs. 1,00,000/10 = Rs. 10,000

Profit/Loss:

Total Assets: Rs. 80,000 (Cash on 31st March 2024) + Rs. 88,000 (Value of Machine) = Rs. 1,68,000

Total Liabilities: Rs. 1,00,000 (Loan Amount) - Rs. 10,000 (Repayment) = Rs. 90,000

Profit/Loss: Total Assets - Total Liabilities

Profit/Loss: Rs. 1,68,000 - Rs. 90,000 = Rs. 78,000

Therefore, the profit earned during the year is Rs. 78,000.