Question

Profit is ascertained under net worth method by calculating :

• A. Difference between the liabilities on two dates
• B. Difference between the gross assets on two dates
• C. Difference between the Capital assets on two dates
• D. Increase in net worth before adjusting for drawings and additions to capital

Answer 1

The correct option is D Increase in net worth before adjusting for drawings and additions to capital

Net worth method also known as statement of affairs method. According to this method profit or loss of the business is determined by making comparison between the capitals of two dates of a period. Drawings and other adjustments of capitals needs to be adjusted before finding out the profits.