The details stated on the right relate to the payroll of XYZ Ltd for the week ended 27 October 2012. The company pays the employees £5.00 per hour plus an overtime premium of £2.50 per hour in excess of the normal working week. The summary of the employees’ time sheet for the same week is stated below on the left. Hours worked, stated below, include 500 overtime hours on capital expenditure and 80 overtime hours on customers’ jobs recoverable from them.

Required:

(a) Show the journal entry for the wages of the company for week ended 27 October 2012, including an appropriate narrative.

(b) Explain the treatment of costs incurred on the company’s capital expenditure and the implications for profit measurement.

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Net wages paid PAYE deducted National Insurance: Employees' Employer's £34,000 £16,500 £2,900 £3,300