QS Study

Statement of Affairs Method:

The Statement of Affair is a review of a Company’s assets and liabilities. It states the net book value and amount expected to comprehend at the date of Insolvency of the business. Accompanying the balance sheet is a list of creditors and shareholders. The following procedures are adopted to calculate profit.

Step 1: Ascertain opening capital: A statement of affairs at the beginning of the year is prepared to find out the amount of capital in the beginning. A statement affairs is like a Balance sheet. The difference between assets and liabilities side represents “Opening Capital”.

Step 2: Ascertainment Closing Capital: Prepare a statement of affairs (after all adjustments) at the end of the accounting period, to ascertain closing capital.

Step 3: Add the amount of drawings (whether in cash or in kind) to the closing capital.

Step 4: Deduct the amount of Additional Capital introduced, from the above, to get Adjusted capital.

Step 5: Ascertainment profit or loss by deducting opening capital from the adjusted closing capital.