contribution of a non-current asset

[soopertaco]

so i was doing a practice exam and came across a question which required me to enter a transaction into a general journal

q: owner purchased filing cabinet for the business $400 + 40 (GST) using his personal bank account (memo 001)

when i entered it in to the general journal i had a debit of $400 for the purchase price of the filing cabinet and a credit to increase capital at $400 too.

But when i check the solutions it includes the debit of $40 GST also so in turn the capital increases by $440.

i don't think i've ever seen GST recorded into the general journal like this before. I'm confused could someone explain why this is correct?
thanks

[BoredSatan]

I think I saw this one too..

I got confused as well. Sorry.

[JinXi]

so i was doing a practice exam and came across a question which required me to enter a transaction into a general journal

q: owner purchased filing cabinet for the business $400 + 40 (GST) using his personal bank account (memo 001)

when i entered it in to the general journal i had a debit of $400 for the purchase price of the filing cabinet and a credit to increase capital at $400 too.

But when i check the solutions it includes the debit of $40 GST also so in turn the capital increases by $440.

i don't think i've ever seen GST recorded into the general journal like this before. I'm confused could someone explain why this is correct?
thanks

The way I would approach this question will be to treat capital similar to a bank account (other than the fact that if it was bank, it'll go into CRJ), since the owner paid for the full $440, which is now a capital contrib.

In the General Journal I would debit filling cabinet by $400 & GST clearing by $40, and credit capital by $440. ($400 to Filling and $ 40 to GST), which is what the solutions did.

We cannot ignore the $40 GST paid by the owner.(It doesn't fit into any of the other journals hence it must be reported in the General Journal.)

Pretty sure this was on one of the past-vcaa paper's. May be even the same question you're on

That should the gist of it but I may be slightly off... haven't done accounting for ages.

[nacho]

so i was doing a practice exam and came across a question which required me to enter a transaction into a general journal

q: owner purchased filing cabinet for the business $400 + 40 (GST) using his personal bank account (memo 001)

when i entered it in to the general journal i had a debit of $400 for the purchase price of the filing cabinet and a credit to increase capital at $400 too.

But when i check the solutions it includes the debit of $40 GST also so in turn the capital increases by $440.

i don't think i've ever seen GST recorded into the general journal like this before. I'm confused could someone explain why this is correct?
thanks

The way I would approach this question will be to treat capital similar to a bank account (other than the fact that if it was bank, it'll go into CRJ), since the owner paid for the full $440, which is now a capital contrib.

In the General Journal I would debit filling cabinet by $400 & GST clearing by $40, and credit capital by $440. ($400 to Filling and $ 40 to GST), which is what the solutions did.

We cannot ignore the $40 GST paid by the owner.(It doesn't fit into any of the other journals hence it must be reported in the General Journal.)

Pretty sure this was on one of the past-vcaa paper's. May be even the same question you're on

That should the gist of it but I may be slightly off... haven't done accounting for ages.

In a sense, the GST is really a contribution of an asset, correct?
(well, a negative liability account..)

[luffy]

so i was doing a practice exam and came across a question which required me to enter a transaction into a general journal

q: owner purchased filing cabinet for the business $400 + 40 (GST) using his personal bank account (memo 001)

when i entered it in to the general journal i had a debit of $400 for the purchase price of the filing cabinet and a credit to increase capital at $400 too.

But when i check the solutions it includes the debit of $40 GST also so in turn the capital increases by $440.

i don't think i've ever seen GST recorded into the general journal like this before. I'm confused could someone explain why this is correct?
thanks

I think the question is slightly ambiguous - I'm probably wrong though.

The owner purchased the cabinet FOR THE BUSINESS. In other words, the owner paid the cash instead of the business paying for the cabinet.
This can be interpreted in different ways:
- The owner paid the cash for the business and bought the cabinet under the business's name. i.e. the source document was written for the business, not the owner. If this is the case, this would in fact, decrease the GST liability to the ATO by $40 and would increase capital by $400.

- The owner paid the cash for the business under his own name and then contributed the cabinet to the business. As the owner contributed a cabinet worth $400, the business records would only show an increase in the cabinet by $400 and capital by $400. Therefore, GST would not be recognised as it had no impact on the business liability.