Statement-Of-Affairs Igcse Cie

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Exam code:0452 & 0985

Statement of affairs

What is a statement of affairs?

A statement of affairs is similar to a statement of financial position
- The difference is that the business has not used a full set of accounting records
- Therefore the business cannot complete an income statement to find the profit or loss
It is prepared to find the missing capital figure at the start or the end of the financial year
It is prepared from the assets and liabilities of the business
The capital can be found using a rearrangement of the accounting equation
- Capital = Assets – Liabilities

How do I prepare a statement of affairs?

STEP 1
List all the assets and calculate the total assets
- Non-current assets
- Current assets
STEP 2
Write down the value for the total capital and liabilities
- It is the same as the total assets
- Leave the capital value blank for now
STEP 3
List all the liabilities
- Non-current liabilities
- Current liabilities
STEP 4
Find the missing capital value
- Subtract the total liabilities from the total assets

Worked Example

Murray operates a local retail store. Murray does not keep full accounting records. Murrary provided the following information about his assets and liabilities at 1 January 2023:

	$
Shop fittings (net book value)	9 000
Inventory	35 600
Trade receivables	19 200
Bank	6 000
Trade payables	20 800
Expenses owing	300

Prepare a statement of affairs to calculate Murray’s capital at 1 January 2023.

Answer

Expenses owing is a liability
Complete the assets section
- The total below is $69 800
The total for the capital and liabilities section will be the same
Complete the liabilities section
- Expenses owing is an accrued expense which is a liability
- The total below is $21 100
Subtract the liabilities from the assets to find the missing capital value
- $69 800 – $21 100 = $48 700

Murray Statement of Affairs at 1 January 2023
	$	$
Non-current assets
Shop fittings at book value		9 000

Current assets
Inventory	35 600
Trade receivables	19 200
Bank	6 000	60 800
Total assets		69 800

Capital and liabilities
Capital		48 700

Current liabilities
Trade payables	20 800
	300	21 100
Total capital and liabilities		69 800

How can I use a statement of affairs to calculate the profit or loss for the year?

You can use a statement of affairs to calculate the opening or closing capital value
This can then be used to calculate the profit or loss for the year
Closing capital is calculated using:
- Closing capital = Opening capital + Capital introduced – Drawings + Profit (or – Loss)
You can rearrange this to find the profit or loss:
- Profit or loss = Closing capital – Opening capital + Drawings – Capital introduced
- A positive value indicates a profit, a negative value indicates a loss
Alternatively, you can draw up the capital ledger account and find the value that balances the account
- If the balancing value is on the debit side then it represents a loss
- If the balancing value is on the credit side then it represents a profit

**The layout of the capital account when finding the profit or loss**

Worked Example

On 1 January 2023, Murray’s capital balance was $48 700. During the year, Murray introduced $10 000 capital to the business and took out $5 000 drawings. The capital account had a balance of $80 500 at 31 December 2023.

Calculate the profit or loss for the year ended 31 December 2023.

Answer

Use the formula.

	$
Closing capital	80 500
Less: Opening capital	48 700
	31 800
Drawings	5 000
	36 800
Less: Capital introduced	10 000
Profit for the year	26 800

Alternatively, draw up the capital account. It can be a rough sketch.

<td class=”border border-dark ContentBlock_tableCell__N2pb_” c

Details	$	Details	$
Drawings	5 000	Balance b/d	48 700
Balance c/d	80 500	Capital introduced	10 000

Accounting Igcse Cie

Statement-Of-Affairs Igcse Cie