This method of determining profitloss is based on the assumption that capital

This method of determining profitloss is based on the

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This method of determining profit/loss is based on the assumption that capital grows by way of profits and reduces by losses made.
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Accounting Equation: Assets – Liabilities = Capital Net Assets = Capital
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Profits are determined using the opening and closing capital via the preparation of Statement of Affairs.
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Statement of Affairs as at … Assets GHc GHc Non current assets xxx Current assets xxx xxx Liabilities Non current liabilities xxx Current liabilities xxx (xxx) Net Assets (capital) xxxx
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Profit or Loss Determination In the determination of profit or loss using the net assets (capital) approach, consideration should be given to drawings and additional capital introduced
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Drawings This has the tendency to reduce the closing capital and hence the profit. They are either added to “apparent profit” or subtracted from “apparent losses”
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Capital Introduced This has the effect of increasing the closing capital and hence the profit. It is therefore subtracted from the ‘‘apparent profit” or added to the “apparent losses”
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Format for Determination of Profit/Loss GHc GHc Closing Capital xxx Add: Drawings xxx xxxx Less: Opening Capital (xxx) Additional Capital (xxx) xxxx Profit /(Loss) xx/
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Guidelines to Net Assets (Capital) Approach Determine the opening and closing capital at the beginning and end of the period via preparation of statement of affairs.
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Trace all withdrawals made by owners for their personal use (drawings). Determine whether there have been any injection of additional capital
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Based on the format of determination of profit/loss (see slide 13), determine the profit or loss.
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  • Spring '20
  • Dr. ASRAVOR
  • Balance Sheet, Generally Accepted Accounting Principles, net assets,  Explain,  Determine profit

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