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I want to ask about part c).
The answer is that, credit purchases (183,800×1,175=215,965). Why not 17.5%?Thanks in advance.
At 1 April 20X9, the payables ledger control account showed a balance of $142,320. At the end of April the following totals are extracted from the subsidiary books for April: $ Purchases day book 183,800 Returns outwards day book 27,490 Returns inwards day book 13,240 Payments to payables, after deducting $1,430 cash discount 196,360 It is also discovered that:
(a) The purchase day book figure is net of sales tax at 17.5%; the other figures all include sales tax.
(b) A customer’s balance of $2,420 has been offset against his balance of $3,650 in the payables ledger.
(c) A supplier’s account in the payables ledger, with a debit balance of $800, has been included on the list of payables as a credit balance. What is the corrected balance on the payables ledger control account?A $130,585
B $144,835
C $98,429
D $128,985The purchases of 183,800 are net of sales tax. The amount credited to payables should include sales tax at 17.5%.
Multiplying 183,800 by 1.175 is exactly the same as taking 183,800 and adding on 17.5% of 183,800 (try it and see 🙂 )
You started by asking about part (c) which has nothing to do with the 17.5%!!
The balances in the payables ledger will normally be credit balances. The fact that one of them is a debit balance means that maybe we have overpaid a supplier or returned goods.
By adding on 800 to the list the total is therefore 800 more, when it shouldn’t be. In fact because it is a debit balance we should have subtracted 800 which means instead of adding 800 we should have subtracted 800 – so the total should be 1,600 less than it is.Have you watched my free lectures on sales tax and on Books of Prime Entry? The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
I got it both of them. Oh, sorry, I had to write part a instead of part c. But, thank you for your comprehensive explanation. I appreciated!
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