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Company formed with initial issue of 1000 shares sold for $1 each.
Inventory of $800 net of sales tax is purchased at 17.5% on credit.
Half of inventory then sold for $1000 plus sales tax payment received by cash.What are the final figures for the accounting equation
Assets – Liability = CapitalPlease help with the calculation…
Inventory net of sales tax = excluding Sales tax = 800x 17.5%=140
Half inventory sold for $1000 + tax — will this mean the tax has already been added??I’m stuck not able to solve this?
Many thanks
Have you watched my free lectures on sales tax?
The inventory purchased will have cost 800 plus sales tax of 140, and so there will be a payable of 940.
The inventory sold will be for 1,000 plus sales tax of 175, and so there will be cash received of 1,175.
So the assets at the end of the period will be:
Inventory of 1/2 x 800 = 400
Cash of 1,000 + 1,175 = 2,175
Total: 2,575The liabilities at the end of the period will be:
Payables of 940
Sales tax of 175 – 140 = 35
Total: 975So assets minus liabilities = 2,575 – 975 = 1,600
Profit for the period = 1,000 – (1/2 x 800) = 600
So total capital = 1,000 + 600 = 1,600Surely there is an answer in the same book in which you found the question? If not then you should be using a different book – you should buy a Revision Kit from one of the ACCA approved publishers.
great. thanks soooo much. you make this so easy that I stop doubting myself that I cant do it.
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