The difference between the fixed assets and current assets is that the fixed assets are the assets which are non for resale and last longer compared to current plus, for case, edifice, premiss, machinery, furniture and etc. Whereas, current assets are the assets, as they are mutable and unstable unlike fixed assets, for case, hard currency in bank, hard currency in manus and etc.
Explain the undermentioned constructs:
Business Entity Concept
Accumulations Concept
Traveling Concern Concept
Consistency Concept
Business Entity Concept:
The personal businesss of a concern are to be treated as being quite separate from the non-business activities of its proprietor or proprietors. For illustration, if you own a concern and pay yourself a wage from the concern, you record these minutess on the fiscal statements of the concern. If on the other manus you invest available financess in another company or purchase into a money market history, this is non shown because there is no affect on the fiscal position of the concern.
Accumulations Concept:
Accumulations construct is concerned with the difference between hard currency grosss and hard currency outgo ( existent payments and grosss of money for points ) and gross and outgo. It states that points should be recorded when used and non when paid for. For illustration, A concern entity may sell goods for $ 20000 on December 25, 2004 and the payment is non received until January 25, 2005. The sale of goods would ensue in an addition in the assets ( debitors ) of the house of $ 20000 and increase in the capital by the same sum ( of class to be reduced by the cost of the goods sold ) although no hard currency has been received. However, when the Cash is received on January 25, 2005, this would non ensue in Revenue. It would ensue in addition in one plus ( hard currency ) and a lessening in another plus ( debitors ) . Similarly disbursals and hard currency payments are non the same because a differentiation is made between Capital and Revenue Expenditures.
Traveling Concern Concept:
Traveling Concern Concept implies that the concern will go on to run for the foreseeable hereafter. For case, the premise should non be made when the concern is traveling to shut down in the close hereafter, where deficit of hard currency makes it about certain that the concern will hold to discontinue trading Oklahoman or subsequently and when concern have to shut down because of deficit of hard currency. For illustration, For Example: – where the venture is for a specific intent like puting up a stall in an exhibition or carnival or the building of a edifice or span etc. under a contract, the concern comes to an terminal on the completion of the undertaking.
Consistency Concept:
Each and every house should seek to take the methods which give the most dependable image of the concern. This can non be done of one method is used in one twelvemonth and another method is used in the following twelvemonth and so on, in other words, each and every house must lodge to one method. For illustration, assume that ABC Company Ltd. purchases equipment for $ 100,000.00 in 20X7. It decides to utilize the straight-line method of depreciation for that equipment. Two old ages subsequently, ABC Company Ltd decides that it is more appropriate to utilize the cut downing balance method. Notwithstanding the bases for freedoms from consistence, IAS 1 does non allow ABC to alter its method of depreciation for that peculiar plus. Since it chose the straight-line method for depreciation foremost, it must lodge with it.
State why it is of import to distinguish between capital outgo and gross outgo, and briefly explain the accounting intervention of each type of outgo.
Capital outgo is made when a house spends money either to purchase fixed assets or to add to the value of an bing fixed assets. Gross outgo is non for increasing the value of fixed assets but for running the concern on a daily footing. The difference between gross and capital outgo can be seen clearly with the entire cost of utilizing a motor new wave for a house. To purchase a motor new wave is capital outgo. To pay for gasoline to utilize in the motor new wave for the following few yearss is gross outgo.
It is of import to distinguish between capital outgo and gross outgo because the consequence on the concluding histories and the net incomes shown in at that place, if gross outgo is wrongly treated as being capital outgo, and frailty versa. In other words, gross outgo which falls under the class of disbursals should be accounted in income statement whereas ; capital outgo which falls under fixed assets should be accounted in balance sheet.
Plant and Machinery was purchased on 1st June 2005 for RM 100,000 and estimated disposal value of RM 10,000. Calculate the depreciation for the old ages 2005 and 2006 utilizing the cut downing balance taking the rate as 10 % method.
Reducing Balance Method:
Year 1: 100000 x 10 % x 7/12 = 5833.33 100000 aa‚¬ ” 5833.33 = 94166.67
Year 2: 94166.67 x 10 % = 9416.667 94166.67 aa‚¬ ” 9416.667 = 84750.003
The frame work for the readying and presentation of fiscal statements states that in order to be utile, fiscal information should run into four aims. These are:
Relevance
Dependability
Comparison
Comprehensibility
Relevance:
Relevance is one of the factors that must be present in the information for it to be utile. Information that is non relevant is considered as a waste of valuable clip in determination devising.
Dependability:
Dependability is the right determination based on a set of fiscal information would besides depend on the dependability of the information. In this context, self generated information is considered to be the most dependable as compared to information gather by 3rd parties. The user must be able to depend truthfulness of the information.
Comparison:
Comparability merely means the ability to compare, to convey together fiscal accounting information for the intent of observing similarities, difference and to supervise the growing of the concern entity. It should be comparable horizontally and dimensionally intending it should be comparable within the entity and across entities. Comparability is necessary to place current tendencies in the market, the growing of the company, the public presentation, benchmarking and to do accurate anticipations about future minutess.
Comprehensibility:
Comprehensibility requires that fiscal accounting information must ease understanding.AA Furthermore, it should be apprehensible and comprehendible to the point that it can be flexible and be understood by non merely concern executives and shareholders but every bit good as the general populace. It should be presented and expressed in concern linguistic communications that all informations users understand. However, complex concern activities make it impossible to cut down the readying and presentation of fiscal statements in simplest footings, therefore, the conceptual model assumes that information users haveAA a sensible cognition of concern and accounting.
Identify any five users of accounting information.
Any five users of accounting information could be the clients, bank, Inland Revenue Board ( IRB ) , authorities and stockholders.
Question 2
You have been supplied with the undermentioned balances for Betsy Li, a exclusive bargainer, for the twelvemonth ended 31 December 2009:
RM
Property at cost 140,000
Equipment at cost 70,000
Provision for depreciation at 01/01/09:
Property 4,200
Equipment 17,500
Purchases 385,000
Gross saless 592,000
Stock at 01/01/09 17,400
Discount allowed 14,000
Discount received 1,900
Returns outward 17,600
Wagess and wages 43,400
Creditors 28,500
Debtors 15,800
Bank overdraft 2,900
Cash in manus 520
Drawings 17,950
Provision for bad debts at 01/01/09 200
General disbursals 11,400
Long term loan 20,000
Capital at 01/01/09 30,670
The undermentioned accommodations need to be taken into history:
Stock at 31/12/09 is $ 21,600
Wagess and wages outstanding at 31/12/09 are $ 4,100
General disbursals includes a payment for rates of $ 1,000
The proviso for bad debts needs increasing to $ 280
Depreciation for the twelvemonth has still to be provided as follows:
Property 1.5 % per twelvemonth utilizing the consecutive line method
Equipment 25 % per twelvemonth utilizing the cut downing balance method
Loan involvement of $ 2,000 is outstanding
The reply for the inquiries listed supra is written below.
Income Statement for the twelvemonth ended 31 Dec 2009
RM RM RM
Gross saless 592,000
less ) Cost of goods sold
Opening stock 17,400
Purchases 385,000
less ) Return outward ( 17,600 )
Net purchase ( 367,400 )
384,800
less ) Closing stock ( 21,600 ) ( 363,200 )
Gross net income 228,800
attention deficit disorder: Gross
Discount received 1,900
230,700
less ) Expenses
Discount allowed 14,000
Wagess and wages 47,500
General disbursals 10,400
Provision for bad debts 80
Property 2,100
Equipment 13,125
Loan 2,000
( 89,205 )
Net net income 141,495
Required:
Fix a test balance for Betsy Li as at 31 December 2009.
Fix the Income Statement and Balance Sheet for Betsy Li for the period stoping 31 December 2009.
Trial Balance as at 31 Dec 2009
Debit ( RM ) Credit ( RM )
Property 140,000
Equipment 70,000
Provision for belongings 4,200
Provision for equipment 17,500
Purchases 385,000
Gross saless 592,000
Stock 17,400
Discount allowed 14,000
Discount received 1,900
Returns outward 17,600
Wagess and wages 43,400
Creditors 28,500
Debtors 15,800
Bank overdraft 2,900
Cash in manus 520
Drawings 17,950
Provision for bad debts 200
General disbursals 11,400
Long term loan 20,000
Capital 30,670
715,470 715,470
Balance Sheet as at 31 Dec 2009
