AccountancyCBSE Class 11 · Accounts from Incomplete Records

Profit from Incomplete Records Class 11: Statement of Affairs Method with Adjustments

Updated 17 October 2026 · Fact-checked

Under the statement of affairs method, profit = Closing capital − Opening capital + Drawings − Additional capital introduced. Drawings are added back because they reduced capital without being a loss; fresh capital is deducted because it increased capital without being profit. Adjustments such as depreciation and provisions must be made before computing closing capital.

Add drawings back, subtract opening and fresh capital from adjusted closing capital, and what is left is profit; a negative result is a loss.

Illustration drawn for QuestionBuddy.

Understand Ascertaining Profit by the Statement of Affairs Method with Drawings and Adjustments

Logic. Closing capital = Opening capital + Additional capital + Profit − Drawings. Rearranged: Profit = Closing capital − Opening capital + Drawings − Additional capital. If the answer is negative it is a loss.

Statement of profit or loss (the usual layout).
Closing capital
Add: drawings (cash and goods; interest on drawings if charged)
Less: opening capital
Less: additional capital introduced
= Net profit (or loss).

Steps.
1. Prepare the opening statement of affairs to find opening capital.
2. Prepare the closing statement of affairs after adjustments (depreciation, provision for bad debts, outstanding and prepaid items) to find closing capital.
3. Collect drawings (cash, goods, personal payments) and additional capital introduced.
4. Apply the formula.

Adjustments in the statement. If items such as depreciation are given and not yet reflected in closing assets, deduct them from the closing assets first. If they are given as extra information for profit, adjust the profit (depreciation reduces profit, a provision reduces profit, interest on capital reduces profit).

Missing figure problems. Use the equation to find the unknown: for example drawings = Opening capital + Additional capital + Profit − Closing capital.

Note. The profit found is only a net figure. The method cannot show gross profit, expenses or incomes separately.

Ascertaining Profit by the Statement of Affairs Method with Drawings and Adjustments: key facts

Profit: Closing capital − Opening capital + Drawings − Additional capital; A negative answer is a loss.
Closing capital: Opening capital + Additional capital + Profit − Drawings; The same equation arranged for closing capital.
Drawings: Opening capital + Additional capital + Profit − Closing capital; Missing-figure form.
Adjusted closing capital: Closing capital after depreciation and provisions; Adjust before the formula.

How to answer Ascertaining Profit by the Statement of Affairs Method with Drawings and Adjustments questions

The formula is short; the work is in the two statements of affairs and the adjustments.

1Find opening capital (assets − liabilities at the start).
2Adjust the closing assets and liabilities for given items and find closing capital.
3Write the statement: closing capital + drawings − opening capital − additional capital.
4Compute the profit; compare the sign for loss.
5For a missing figure, rearrange the equation.

Ascertaining Profit by the Statement of Affairs Method with Drawings and Adjustments in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Did she make a profit?

Suppose a stall owner started the year with capital of ₹1,00,000, ended with ₹1,20,000, took ₹30,000 for home use and added ₹10,000 of fresh capital.

What was her profit?

Try it first, then show the solutionSolution

Increase in capital = 1,20,000 − 1,00,000 = 20,000.
Add drawings 30,000 and deduct fresh capital 10,000.

Answer: Profit = 20,000 + 30,000 − 10,000 = ₹40,000.

Memory hook: Draw adds, add-in subtracts.

Tricks to remember Ascertaining Profit by the Statement of Affairs Method with Drawings and Adjustments

Short memory aids. Say each one aloud once, then use it on a question the same day.

Draw-back, deduct fresh
Add back drawings; deduct new capital.
Use it when: Profit formula.
Adjust first
Depreciation and provisions go into the closing capital first.
Use it when: Closing statement.

Ascertaining Profit by the Statement of Affairs Method with Drawings and Adjustments: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Profit formula · 1 mark · MCQBoard level

Under the statement of affairs method, profit is:
(a) Closing capital − Opening capital
(b) Closing capital − Opening capital + Drawings − Additional capital
(c) Closing capital + Opening capital
(d) Opening capital + Drawings

Try it first, then show the solutionSolution

Adjust for drawings and fresh capital.

Answer: (b) Closing capital − Opening capital + Drawings − Additional capital

Example 2: Simple profit · 3 marks · Short answerBoard level

Opening capital ₹1,02,000; closing capital ₹1,16,100; drawings ₹30,000 (cash ₹24,000 and goods ₹6,000); additional capital ₹10,000. Find the profit. (3 marks)

Try it first, then show the solutionSolution

Increase in capital = 1,16,100 − 1,02,000 = 14,100.
Add drawings 30,000; deduct additional capital 10,000.
Profit = 14,100 + 30,000 − 10,000 = ₹34,100.

Answer: Profit ₹34,100.

Example 3: Adjusting the closing statement · 4 marks · Short answerHarder board level

Opening capital ₹2,50,000. Closing capital before adjustments ₹3,10,000. Depreciation ₹10,000 and a provision for doubtful debts ₹2,000 are yet to be provided. Drawings ₹40,000; additional capital ₹20,000. Find the profit. (4 marks)

Try it first, then show the solutionSolution

Adjusted closing capital = 3,10,000 − 10,000 − 2,000 = ₹2,98,000.
Profit = 2,98,000 − 2,50,000 + 40,000 − 20,000 = ₹68,000.

Answer: Profit ₹68,000.

Example 4: Missing drawings · 4 marks · Short answerHarder board level

Profit ₹45,000; opening capital ₹1,70,000; closing capital ₹2,10,000; additional capital ₹15,000. Find the drawings. If the owner took goods worth ₹4,000 as part of it, how much was cash? (4 marks)

Try it first, then show the solutionSolution

Closing = Opening + Additional + Profit − Drawings.
2,10,000 = 1,70,000 + 15,000 + 45,000 − Drawings.
Drawings = 2,30,000 − 2,10,000 = ₹20,000.
Cash drawings = 20,000 − 4,000 = ₹16,000.

Answer: Drawings ₹20,000; cash portion ₹16,000.

Example 5: A loss in disguise · 4 marks · Short answerHOTS / competency

A trader's capital rose from ₹1,50,000 to ₹1,70,000. During the year he withdrew ₹30,000 and brought in ₹60,000 of new capital. Find the profit or loss and explain why the simple rise in capital was misleading. (4 marks)

Try it first, then show the solutionSolution

Profit = 1,70,000 − 1,50,000 + 30,000 − 60,000 = −₹10,000.
It is a loss of ₹10,000.
The capital rose only because ₹60,000 of fresh capital was added; without that, capital would have fallen by 40,000 after drawings.

Answer: Loss ₹10,000.

Where students lose marks in Ascertaining Profit by the Statement of Affairs Method with Drawings and Adjustments

The slips examiners see most often, and what to write instead.

Mistake: Deducting drawings
Subtracting drawings in the formula.
Wrong working
Profit = 20,000 − 30,000 − 10,000.
Right working
Profit = 20,000 + 30,000 − 10,000.
Do this: Drawings are added back.
Usually costs: 1 mark
Mistake: Forgetting adjustments
Using unadjusted closing capital.
Wrong working
Closing capital 3,10,000.
Right working
Closing capital after adjustments 2,98,000.
Do this: Adjust the closing statement first.
Usually costs: 1 mark
Mistake: Adding additional capital
Treating new capital as profit.
Wrong working
Profit = 14,100 + 30,000 + 10,000.
Right working
Profit = 14,100 + 30,000 − 10,000.
Do this: New capital is not profit.
Usually costs: 1 mark

Exam tips

Show the statement of profit in four lines.
Say "adjusted closing capital" when adjusting.
Treat goods taken as drawings at cost.
Mention that the method gives only net profit.

Practice questions on Ascertaining Profit by the Statement of Affairs Method with Drawings and Adjustments

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Drawings are added back in the profit formula because:
(a) they are profit
(b) they reduced capital without being a loss
(c) they increased capital
(d) they are an asset
Hint
Capital reduced.
Answer
(b) they reduced capital without being a loss
Q2 · 3 marks · Short answerHarder board level
Opening capital ₹1,80,000; closing capital ₹2,64,000; drawings ₹52,000; additional capital ₹25,000. Find the profit. (3 marks)
Hint
Direct application.
Answer
Profit = 2,64,000 − 1,80,000 + 52,000 − 25,000 = ₹1,11,000.
Q3 · 4 marks · Short answerHarder board level
Closing capital before adjustments ₹5,40,000; depreciation ₹18,000 and a provision for bad debts ₹7,000 are to be provided; opening capital ₹4,50,000; drawings ₹60,000 including goods ₹10,000; fresh capital ₹30,000. Find the profit. (4 marks)
Hint
Adjust first.
Answer
Adjusted closing capital = 5,40,000 − 18,000 − 7,000 = 5,15,000. Profit = 5,15,000 − 4,50,000 + 60,000 − 30,000 = ₹95,000.
Q4 · 1 mark · Assertion-reasonHarder board level
Assertion (A): The statement of affairs method gives only the net profit, not the gross profit.
Reason (R): It uses only the change in capital and does not use the trading and P&L accounts.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Only capital figures are used.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q5 · 5 marks · Short answerHOTS / competency
A trader finds that profit calculated by the statement of affairs method is ₹90,000 but his accountant says he omitted interest on drawings of ₹3,000 charged to him and interest on capital of ₹5,000 allowed on his capital. Find the profit after these two items and explain the direction of each. (5 marks)
Hint
Both are internal adjustments.
Answer
Interest on capital is an expense of the business: profit falls by 5,000. Interest on drawings is an income of the business: profit rises by 3,000. Profit = 90,000 − 5,000 + 3,000 = ₹88,000. (The owner's capital rises by 5,000 and falls by 3,000, a net 2,000 transfer.)

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Profit formula?Show answer
Closing capital − opening capital + drawings − additional capital.
2.Why add drawings?Show answer
They reduced capital but are not a loss.
3.Why deduct fresh capital?Show answer
It increased capital but is not profit.
4.When is the answer a loss?Show answer
If the calculation gives a negative figure.
5.What does the method not show?Show answer
Gross profit and details of income and expenses.

Ascertaining Profit by the Statement of Affairs Method with Drawings and Adjustments: frequently asked questions

Is this method also called the net worth method?

Yes, in some books; the idea is the same.

Do goods taken by the owner count as drawings?

Yes, at cost.

Why adjust the closing statement before computing profit?

So that depreciation and provisions reduce the closing capital and therefore the profit.