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Hi my Dear Tutor,I have a question
A sole trader’s business made a profit of 32500$ during the year ended 31 March 20×8.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 and therefore has charged only the net amount to his statement of profit or loss and other comprehensive income.
Hi Capital at 1 April was 6500.what was his capital at 31 March 20×8.
Closing net asset=opening net asset of 6500+32500 of profit -only sales tax 400*17.5=70=38930
From this i understood that 32500 is the net amount after deducting 100 and 400 but excluding sales tax amount.did i get it right?
Yes, you got it right (but why are you attempting questions for which you do not have an answer? You should be using a Revision Kit from one of the ACCA approved publishers.)
The whole of the telephone bill including sales tax should be included in drawings (because it was his home telephone), and so his drawings are 470, plus, or course, 5,200 for what he calls wages. So his total drawings are 5,670.
Neither the telephone bill nor his ‘wages’ should have been charged in arriving at the profit. So the profit should be 32,500 + 400 + 5,200 = 38,100
So the capital at the end of the year is 6,500 + 38,100 – 5,670 = 38,930.
This is a question from Kaplan Kit.
I’m confused about how to treat the Tax amount of $70. The answer says it should NOT be paid from the business’ assets. Since the owner is registered for tax, he should pay the amount himself.I would be really grateful if you can elaborate on how to treat such types of tax amounts.
He will be registered only for transactions of the business.
Because the telephone bill is for his home, the business is not allowed to reclaim the sales tax and therefore the whole of the telephone bill (including the tax) is charged to the owner as drawings.
What the owner has wrongly done at the moment is charged the net amount to telephone expenses of the business and debited the sales tax account with the tax as though it is reclaimable (the entries are explained in my free lectures on sales tax). However it is not an expense of the business and the tax is not reclaimable. Therefore the profit needs increasing by the net amount (that should not have been charged as an expense) and the whole of the bill (including tax) is treated as drawings (because it was a private expense that had been paid by the company).
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