In preparing the accounts of your company you are faced with a number of problems. These are: The long-term future success of the company is extremely uncertain. At the year-end, an amount is outstanding for water that has been consumed during the accounting period. During the year, the company purchased Sh.1000 worth of biro pens these had all been issued from stock and were still in use at the end of the year. A debtor who owes a large amount to the company is rumoured to be going into liquidation. The company has had a poor year, and the directors believe that a more balanced results could be presented if a LIFO (last-in-first-out) stock valuation method was adopted, instead of the present FIFO (first-in, first-out) method.
i) In preparing the accounts of your company you are faced with a number of problems. These are:
- The long-term future success of the company is extremely uncertain.
- At the year-end, an amount is outstanding for water that has been consumed during the accounting period.
- During the year, the company purchased Sh.1000 worth of biro pens these had all been issued from stock and were still in use at the end of the year.
- A debtor who owes a large amount to the company is rumoured to be going into liquidation.
- The company has had a poor year, and the directors believe that a more balanced results could be presented if a LIFO (last-in-first-out) stock valuation method was adopted, instead of the present FIFO (first-in, first-out) method.
Required:
State which accounting concepts the accountant should follow in dealing with each of the above problems, and explain briefly what each concept means.
ii) The following categories of people are recognized as users of the information contained in financial statements:
- Owners
- Financial analysts
- Lenders
For each of the above users of financial statements, identify the kind of information they may required, why they require it and the decisions they made from that information.
iii) “Qualitative characteristics are the attributes that make information provided in financial statements useful to users”.
Briefly explain the four main qualitative characteristics of financial statements with reference to shareholders of a company.
- iv) Mr J Mwero, a wholesale merchant had the following balances in his ledger at 1 March 2019.
Cash in hand Sh.3,000; Bank overdraft Sh.7,000; Motor vans Sh.56,000; Furniture and Equipment Sh.11,900; Creditor (R. Osoro) Sh.4,800; Debtor (B. Anyumba) Sh.3,000; Capital Sh.20,000; Loan from Kokise Investment Ltd. Sh. 42,100.
At the end of the month, Mr. J Mwero was able to provide the following information from his records:
Cash Transactions:
- I) Receipts - March 7: Cash Sales - Sh.1,200
“ 26: Cash from bank - Sh.3,500
- ii) Payments - March 10: Electricity - Shs.200
“ 14: Salaries - Sh.1,800
“ 25: Postage and Stationery - Sh.960
Bank Transactions:
- i) Receipts - March 17: B. Anyumba - Sh.48,000
- ii) Payment - March 20: R. Osoro - Sh. 20,600 in full
Settlement less Sh.200 cash discount
March 27: Kokise Investment Ltd. - Shs.2,100
Other Transactions:
March 5: Purchase goods - Sh.16,000 from R Osoro
March 11: Sold goods to B Anyumba - Shs.50,000
March 13: Bought office chair - Sh.280 on credit from United Furniture mart
March 15: B Anyumba returned goods worth Sh.150
Required,
- Open accounts in Mr J Mwero’s
ledger and post above transactions in the ledger and the three columncash book . - Balance the accounts and extract a
Trial Balance as at 31March 2019.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
