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Statement of Financial Position and Statement of Profit or Loss

Forums › ACCA Forums › ACCA FA Financial Accounting Forums › Statement of Financial Position and Statement of Profit or Loss

  • This topic has 2 replies, 2 voices, and was last updated 5 years ago by shaheena98.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • July 31, 2019 at 3:43 pm #525751
    shaheena98
    Member
    • Topics: 9
    • Replies: 8
    • ☆

    This is one of the practice questions online from this website:

    On 1 July 2012, a business had net assets of $23,000. At 30 June 2013, they had total assets of $34,000 and total liabilities of $8,000. During the year, the owner had $2,000 more capital and had taken drawings of $500 per month. What was the profit for the year ended 30 June 2013?

    This is what I did:

    ($34,000-$23,000) = $2,000 + profit – ($500 x 12)
    $11,000 = $2,000 + profit – $6,000
    $11,000 = profit – $4,000
    profit = $11,000 + $4,000
    profit = $15,000

    However, when I submitted the answer and I checked, it said that I was wrong and the answer was $7,000. When I saw how they worked the answer out, I saw that they reduced the liabilities worth $8,000 (given in question) from the closing net assets as of 30th June 2013 worth $34,000. I am kind of confused here; why do they decrease the liabilities from the net assets? What is the terminology and how does that work?

    July 31, 2019 at 4:23 pm #525758
    Chris
    Member
    • Topics: 7
    • Replies: 600
    • ☆☆☆☆

    You’re getting confused between total assets and net assets. Total assets is the total of all assets on the balance sheet without taking liabilities into account. Net assets is total assets minus total liabilities, which is equal to shareholder’s equity.

    So the total assets at 30th June 2013 is $34,000, but the net assets is $34,000 – $8,000 = $26,000.

    August 1, 2019 at 7:12 am #525937
    shaheena98
    Member
    • Topics: 9
    • Replies: 8
    • ☆

    Ohh got it! Thank you so much!

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    Posts
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