Final answer:
The balance on Luigi's capital account is calculated using the accounting equation with the provided balances. After totaling the assets and subtracting the liabilities, the capital account balance is £62,000, which is answer option C.
Step-by-step explanation:
To calculate Luigi's capital account balance, we need to use the accounting equation, which states that assets equal liabilities plus the owner's equity. In this context, assets are what the business owns, liabilities are what it owes, and the owner's equity (or net worth) reflects the owner's claim on the business after debts have been paid. Given the balances provided, we need to total Luigi's assets and subtract the liabilities and non-owner's equity items to find the capital account balance. The total assets are calculated by summing the non-current assets, trade receivables, inventory, and prepayments, minus the accumulated depreciation. Non-current assets: £85,000; Trade receivables: £7,000; Inventory: £4,000; Prepayments: £2,000. Less accumulated depreciation: £15,000.
The sum of total assets is £83,000. Next, we add up Luigi's liabilities, which include trade payables, accruals, bank loans, and bank overdrafts. Trade payables: £3,000; Bank loan: £15,000; Accruals: £1,000; Bank overdraft: £2,000 The sum of total liabilities is £21,000. The balance on Luigi's capital account can now be found by subtracting the liabilities from the assets: £83,000 (Assets) minus £21,000 (liabilities) = £62,000 (capital account balance). Therefore, the balance on Luigi's capital account is £62,000, which corresponds to option C. The balance on Luigi's capital account can be calculated by using the formula: Capital = (Non-current assets + Trade receivables + Inventory) - (Trade payables + Bank loan + Accumulated depreciation + Accruals + Prepayments + Bank overdraft). Plugging in the given values: Non-current assets = £85,000, Trade receivables = £7,000, Inventory assets= £4,000, Trade payables = £3,000, Bank loan = £15,000, Accumulated depreciation = £15,000, Accruals = £1,000, Prepayments = £2,000, Bank overdraft = £2,000. Substituting the values into the formula: Capital = (£85,000 + £7,000 + £4,000) - (£3,000 + £15,000 + £15,000 + £1,000 + £2,000 + £2,000) = £64,000. Therefore, the balance on Luigi's capital account is £64,000 (Option D).