A tech startup's payroll records for the month show: Gross wages $50,000; Income tax deducted (PAYE) $10,000; Employee pension contributions $2,500; Employer pension contributions $3,000. What is the total wage expense to be recognized in the statement of profit or loss for the month?

Answer options:

$50,000

$37,500

$53,000

$55,500

How to approach this question

Calculate the total cost to the employer. This includes the gross wages plus any additional employer contributions.

Full Answer

C.$53,000✓ Correct

The total wage expense to the employer is the Gross Wages plus any Employer Contributions. The income tax (PAYE) and employee pension contributions are deductions from the employee's gross pay, so they are already included in the $50,000 gross figure. Therefore, Total Expense = $50,000 (Gross) + $3,000 (Employer Pension) = $53,000.

Common mistakes

Adding employee deductions to the gross wage, or using net pay as the expense.

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