Only the best Accountants can help here, I think

[Sijan92]

Hey guys. I have been doing question 1(a) from Oct paper2 2008 AS and facing difficulties.

This is what is written in the examiners report=

Very few completed this section correctly. A common fault was that of not realising that the dates
were of prime importance – one set of figures was clearly labelled as at the end of the accounting
period, whilst the other was dated at the beginning of the period. Also, candidates often did not
know how to handle the salary and drawings figures. For example, the closing balance of capital at
30 September 2006 was easily calculated: total assets less total liabilities = $1 169 000. From this
were deducted $600 000 opening capital + $320 000 current accounts less ($123 000 drawings +
$45000 salary) = $752 000. Giving a profit for the year of $417 000. A large minority attempted to
calculate the profit by drawing up a trading and profit & loss account for which they gained little
credit. Commonly, candidates gained five marks for calculating correctly the three years’ closing
balances.


I have indicated my area of difficulty in red font. Can anyone tell me why salary is added ?? It should actually be deducted as it appears on the credit side of the current account!! Please clarify!! MY AS accounting exam starts soon!!!!!!!!!!

 

[Sijan92]

As the question is a huge one, you probably have to solve the whole thing first in order to make me understand. Please do up to the net profit of 2006 ( could take 6-7mins) and check in with the mark scheme. That would be enough to solve my problem...

 

[Sijan92]

Haha. Still no replies?? It has been hours!!! Guess you don't have what it takes to be the best ..

 

[xyz1993]

the effect of salary on the current account is NIL. because yes, the partner first received the salary and it was therefore creditted to his account. but see that the question says he also withdrew the salary in cash. the entry for this is current account debit and bank credit. this basically means that while partner was first entitled to the salary (and hence it was a credit entry to his current account), when he withdrew the salary in the form of cash (this came as debit entry to his current account). net effect is nil.
however to find the overall profit...you have to add salary because remember that in the p and l appropriation account salary must have been deducted.

 

[Sijan92]

Which means here total profit means 'share of profit plus salary?' .. isn't just total 'share of profits' asked in the question?