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Dear Sir,
I don’t know why 400$ is not added back to the profit as it is a personal exp not business exp. And why 17.5% tax is deducted to calculate the profit but not added.A sole trader’s business made a profit of $32,500 during the year ended 31 March 20X8.
This figure was after deducting $100 per week wages for himself. In addition, he put his
home telephone bill through the business accounting records. 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 statement of profit or loss and other comprehensive Income.
His capital at 1 April 20X7 was $6,500. What was his capital at 31 March 20X8?(Ans)
Capital at 1 April 20X7 6500
Add: profit (after drawings) 32500
Less: sales tax element (70)
Capital at 31 March 20X8 38930Thank Sir
Given that the telephone bill was for his home telephone, the whole amount (including the sales tax) should have been charged to drawings.
He has charged the net amount of $400 to the SOPL and should not have done that.
So…..the profit needs increasing by $400 (to remove the expense that should not have been there) and the drawings need increasing by $470.
The net effect of the two is that the capital reduced by the difference of $70.
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