Q44 a trader commenced business on 01/01/20x1 with $ 12,000 represented by 6,000units of a certain product at$ 2 per u

[answerhappygod]

Q44
a trader commenced business on 01/01/20x1 with $ 12,000 represented by 6,000units of a certain

product at$ 2 per unit. during the year 20x1 he sold these units at$ 3 per unit and had withdrawn

$ 6,000. let us assume that the price of the product at the end of year is $ 2.50 per unit. in other

words, the specific price index applicable to the product is 125.

current cost of opening stock = ($ 12,000 / 100) x 125 = 6,000 x $ 2.50 = $ 15,000

current cost of closing cash = $ 12,000 ($ 18,000 – $ 6,000)

opening equity at closing current costs = $ 15,000

closing equity at closing current costs = $ 12,000

retained profit = $ 12,000 – $ 15,000 = (-) $ 3,000

the negative retained profit indicates that the trader has failed to maintain his capital. the

available fund of$ 12,000 is not sufficient to buy 6,000 units again at increased price of $ 2.50 per

unit. the drawings should have been restricted to $ 3,000($ 6,000 – $ 3,000). had the trader

withdrawn $ 3,000 instead of $ 6,000, he would have left with $15,000, the fund required to buy

6,000 units at $ 2.50 per unit. you are required to compute the capital maintenance under all three