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Dear sir,
I have some problem to tackle some questions in the BPP revision kit. Could you please help me? Thanks in advance.1. A business’s bank balance increased by $ 750000 during its last financial year. During the same period it issued shares of $1 million and repaid a loan note of $ 750000. It purchased NCA for $200000 and charged depreciation of $100000. Working capital (other than the bank balance) increased by $575000.
What was its profit for the year?
A.$1,175,000
B.$1,275,000
C.$1,325,000
D.$1,375,000The answer in the revision kit is A.
2. A sole trade’s business made a profit of $32500 during the year ended of 31 march 2018. This figure was deducting $100 per week 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 profit or loss and other comprehensive income.
His capital at 1 April 2017 was $6500. What was his capital at 31 March 2018?
A. $33,730
B. $33,800
C. $38,900
D. $39,000The answer in the revision kit is C.
1. This questions needs you to use what you know about the Statement of cash flows “backwards”.
Cash from operating activities + cash from investing activities + cash from financing activities – net cash inflow.
So cash from op activities – 200,000 + 1,000,000 – 750,000 = 750,000.
So cash from op activities = 700,000Cash from op activities = profit + depreciation – increase in working capital.
So 700,000 = profit + 100,000 – 575,000
Therefore profit = 1,175,0002 Increase in net assets / capital = profit + capital introduced – drawings
Capital at year end – 6,500 = (32,500 + 400 + (52 x 100)) + 0 – ((52 x 100) + (400 +17.5%))
Therefore capital at the year end = 38930.
You have either mistyped the choices of answer, or you are using an old version of the BPP Revision Kit with the wrong answer. The current version does show 38930 as the correct answer.
Sir, I have another problem concerning incomplete records.
– Bank and cash summery, Alpha 2014
$
Cash received from credit customers and paid into bank 318,600
Expenses paid out of cash received from credit customers
before banking 6,800
Cash sales 112,900– Other imformation, Alpha 2014
Bad debts 7,200
Discounts allowed 9,400
Closing balance of trade receivables 0Which of the following correctly represents Alpha’s sales for 2014?
A. 517,900
B. 112,900
C. 831,600
D. 510,900The answer in the BPP revision kit is A.
But why are you asking me, when the BPP Revision Kit shows how they arrive at the answer?
You are absolutely correct sir. The book has the answer but I don’t understand the working in terms why the figures are being added.If a T ledger is drawn, how we would represent the information?(what would appear on the debit or credit side?)
You have typed the question wrongly! Cash received is 381600 and not 318600
Cash received from credit customers is 381600 + 6800 = 388400.
In the receivables control account:
Credit with the cash received of 388400
Credit with the irrecoverable debts of 7200
Credit with the discounts of 9400The balancing figure is sales on credit.
Add it to the cash sales to get the total sales.Sir, thank you very much for helping me but I still have some doubt.
1. Cash from operating activities + cash from investing activities + cash from financing activities – net cash inflow.
So cash from op activities – 200,000 + 1,000,000 – 750,000 = 750,000.
So cash from op activities = 700,000Cash from op activities = profit + depreciation – increase in working capital.
So 700,000 = profit + 100,000 – 575,000
Therefore profit = 1,175,000-How did you obtain “cash from op activities = 700,000”?
-“cash from op activities – 200,000 + 1,000,000 – 750,000 = 750,000”. When I typed these figures in my calculator I obtained “50,000”. How did you obtain “750000?”2.Increase in net assets / capital = profit + capital introduced – drawings
Capital at year end – 6,500 = (32,500 + 400 + (52 x 100)) + 0 – ((52 x 100) + (400 +17.5%))
Therefore capital at the year end = 38930.
Could you explain to me steps by steps of your workings because it’s a bit difficult to understand your calculations.
Thanks in advance.
1. This really is basic arithmetic!
cash from op activities – 200,000 + 1,000,000 – 750,000 = 750,000
so cash from operating activities = 750,000 + 200,000 – 1,000,000 + 750,000 = 700,0002.
6,500 is the capital/net assets at the start of the year
32,500 is the profit for the year
52 x 100 is the cash drawings for the year (which also need adding to the profit because they should not have been in the profit statement)
400 is the net of sales tax telephone bill which needs adding to the profit because it should not have been in the profit statement
400 + 17.5% is the telephone bill including sales tax which should be charged as drawings
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