October 2012 Q6

Discussion in 'CB1' started by AKS01, Sep 4, 2019.

  1. AKS01

    AKS01 Active Member

    I have calculated the answer to be B but don’t completely understand why we don’t include his life savings and borrowings?
     
    Last edited: Sep 4, 2019
  2. Lynn Birchall

    Lynn Birchall ActEd Tutor Staff Member

    It's because of timing: the life savings and borrowings were put in when the business started (ie a number of years ago). We're interested in 'assets - liabilities' now, not when the business started.

    If we did include the life savings and borrowings, we'd be double-counting to some extent, eg some of that money may have been used to buy the office and equipment.

    Hope this helps clarify things
    Lynn
     
    AKS01 likes this.

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