Tom set up a business on 1 January.
He bought fixed assets costing £53,000 and stock costing £6,600. He had financed these in advance of commencing business with a personal loan of £25,000 from his brother and a business loan from a bank.
On 31 December of the same year, his net assets totalled £37,200. His net profit for the year was £21,100.
Tom’s drawings during the year were?
Select ONE answer:
- £1,300
- £8,900
- £16,100
- £18,500
Show your workings to arrive at your answer, and explain and justify your reasons:
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This multiple choice question is suitable for Accounting KS5 classes.
The answer is 2
- Not correct
- Correct – Amount of the business bank loan = (£53,000 + £6,600) – £25,000 = £34,600. Capital at 1 January = Assets at 1 January – Liabilities at 1 January = (£53,000 + £6,600) – £34,600 :- £25,000. This £25,000 could also be viewed as Tom’s personal interest in the business (the loan he got from his brother). Capital at 31 December = Assets at 31 December – Liabilities at 31 December. This is equal to net assets at 31 December = £37,200. But, Capital at 31 December = Capital at 1 January + Net profit for the year – Drawings during the year. Therefore, £37,200 = £25,000 + £21,100 – Drawings during the year. Therefore, drawings during the year = £8,900.
- Not correct
- Not correct
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