Day: May 4, 2019

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. £1,300
2. £8,900
3. £16,100
4. £18,500

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. 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.
3. Not correct
4. Not correct

 

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