Question

Under the net worth method, the basis of ascertaining profit is the:

• 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

Answer: (D)

Increase in net worth before adjusting for drawings and additions to capital

Under the net worth method net worth is calculated by deducting all the liabilities from the assets. The profit is calculated by finding the difference between the net worth of two periods the beginning of the year and the end of the year without accounting for the drawings and addition as they are not a aprt of profit.