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.