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 38930
Thank Sir
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Acccounting/Business equation
2y ago#1Given 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.
Thanks Sir!
2y ago#3You are welcome :-)
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