Vikram is a partner. There are no salaries or interest on capital, but 5% interest is charged on drawing balances. Vikram's drawings were 40,000 and his share of profit was 47,500. His current account ended with a credit balance of 4,500. What was the opening balance of his current account?

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SSC Financial and Cost Accounting P-1 QUESTION #6084

Question 1

Vikram is a partner. There are no salaries or interest on capital, but 5% interest is charged on drawing balances. Vikram's drawings were $40,000 and his share of profit was $47,500. His current account ended with a credit balance of $4,500. What was the opening balance of his current account?

$1,000 debit✔️
$3,000 debit
$5,000 debit
$5,500 debit

Correct Answer Explanation

Interest on drawings = $40,000 $\times$ 5% = $2,000.
Let Opening Balance = $x$.
$x$ (Opening) + $47,500 (Profit) - $40,000 (Drawings) - $2,000 (Interest) = $4,500 (Closing).
$x$ + $5,500 = $4,500 $\Rightarrow$ $x = -1,000$.
A negative result for a credit-balance calculation indicates a $1,000 debit balance.

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