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A sole traders business made a profit of $32500 dirong the year ended 31 mar 20X8.this fig was after deducting $100 per wk wages for himself.in addition,he put hos home telephone bill through the business books,amounting to $400 plus sales tax at 17.5%.he is registered for sales tax and therefore has charged only the net amount to his SOPL.
as he paying $400*17.5%=$470 for telephone bill,the whole amount should be deducted as drawings.
but in thehe solution it has only deducted $70.
please explain sir..You are correct that the whole 470 should be drawings and not as an expense in the Statement of profit or loss.
However you have not said what it was that the question asked for (and what the answer was) and so I can’t check whether whoever set the question has made a mistake or not.
What did the question ask for?
In that case the answer is fine.
The true profit is 32,500 + 400 + (52 x 100) = 38,100
The drawings are 470 + (52 x 100) = 5,670
Therefore the closing capital is 6,500 + 38,100 – 5,670 = 38,930
However, because you are asked for the closing capital only, the end result is that it is only the 70 than makes a difference to the amount added on to the opening capital. (The 400 and the 5,200 affect both the profit and the drawings)
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