- This topic has 1 reply, 2 voices, and was last updated 4 years ago by
.
- Posts
Hello sir, kindly i need assistance in the following question
20.9 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 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 statement of comprehensive income.
His capital at 1 April 20X7 was $6,500. What was his capital at 31 March 20X8?
A $33,730
B $33,800
C $38,930
D $39,000yes sir , but still I’ve doubt in this question and that is , what does this 400 plus 17.5% stand for? and why 400 has once to be added back to the profit and anothertime 470 is subtracted in order to get the closing inventory?
the correct answer is cThe amount actually paid for the telephone will include sales tax and is therefore 400 plus 17.5% = $470.
If it was a business expense then the expense in the SOPL would be 400 because the 70 sales tax would be recovered by the company from the state. That is why the owner has charged just the 400 in the SOPL.
However the owner was wrong to do this because it the cost of home telephone. So the whole about paid of 470 is treated as drawings. Also, 400 should not have been charged as an expense in the SOPL which means the correct profit will be 400 higher.
My free lectures on sales tax will help you. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
- You must be logged in to reply to this topic.