Which of the following adjustments would not affect the net profit of a sole trader?
A. Interest on drawings
B. Prepaid insurance
C. Increase in provision for doubtful debts
D. Outstanding salary
Answer: Option A
Solution (By JKSSB Mock Tests)
Interest on drawings is an appropriation of profit in sole proprietorship? Actually in sole proprietorship, drawings are not subject to interest unless specifically decided for managerial accounting. But in financial accounting for sole traders, interest on drawings is not charged to P&L. It reduces capital directly if considered. So it does not affect net profit. Others affect P&L.
Explanation:
Ind AS 109 prescribes the requirements for the recognition, measurement, impairment, derecognition, and hedge accounting of financial instruments. Ind AS 113 defines fair value and sets out its measurement framework. Both are correct.
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