A local taxes prepayment of £475 at the reporting date for his financial statements was treated as an accrual in preparing Alex’s a sole trader’s income statement.
As a result, Alex’s profit was?
Select ONE answer:
Understated by £950
Overstated by £950
Understated by £475
Overstated by £475
Show your workings to arrive at your answer, and explain and justify your reasons:
Alex is a sole trader prepares financial statements each year to 31 May.
His rent is payable quarterly in advance on 1 January, 1 April, 1 July and 1 October.
Local property taxes are paid each year in two equal instalments on 1 April and 1 October.
His annual rental for the calendar years 2022 and 2023 was £4,800 and £5,400 respectively but on 1 January 2024 this was increased to £6,600 per annum.
Local property tax for the last three years has been as follows:
•Year commencing 1 April 2022 – 3,600
•Year commencing 1 April 2023 – 3,900
•Year commencing 1 April 2024 – 4,500
In preparing his financial statements for the year ended 31 May 2024, the charge to the profit and loss account from his rent and local property tax account would be what for Alex?
Select ONE answer:
£9,900
£10,100
£10,200
£10,300
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 1
Correct – £4,000 tax +£5,900 rent = £9,900 == > Rent 1June 2023 to 31 December 2023 = 7/12 x £5,400 + 1 January 2024 to 13 May 2024 = 5/12 x £6,600 = £5,900 + Local property tax 1 June 2023 to 31 March 2024 = 10/12 x £3,900 + 1 April 2024 to 31 May 2024 = 2/12 x £4,500 = £4,000
This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 3
Not correct
Not correct
Correct == > The accrual should have increased expenses by £400 but instead expenses were decreased by £400 leading to an overstatement of profit of £800.
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