Q1. You have been appointed as an accountant of M.K. Industries a company formed by Mr Mutiso and Mr K.Kyalo to manufacture cooking fats for sale. While reviewing the accounting records of the company, you discovered that the following transactions and events were recorded during the year ending 30 September 1993. (iv) Land was reported at its estimated selling price, which is substantially higher than its cost. The increase in value was included in the income statement. (v) The personal assets of M.Mutiso and KKyalo are not inchluded in the financial statements of the business although M.Mutiso and K.Kyalo are agreeable to guaranteeing the bank overdraft of the business. Required: For each of the above items, explain which basis of accounting principle(s), concept(s) or convection(s), if any, are violated or observed. In each case, indicate the correct treatment

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Q1. You have been appointed as an accountant of M.K. Industries a company
formed by Mr Mutiso and Mr K.Kyalo to manufacture cooking fats for sale. While
reviewing the accounting records of the company, you discovered that the
following transactions and events were recorded during the year ending 30
September 1993.
(iv) Land was reported at its estimated selling price, which is substantially higher
than its cost. The increase in value was included in the income statement.
(v) The personal assets of M.Mutiso and KKyalo are not included in the financial
statements of the business although M.Mutiso and K.Kyalo are agreeable to
guaranteeing the bank overdraft of the business.
Required:
For each of the above items, explain which basis of accounting principle(s),
concept(s) or convection(s), if any, are violated or observed. In each case, indicate
the correct treatment
Transcribed Image Text:Q1. You have been appointed as an accountant of M.K. Industries a company formed by Mr Mutiso and Mr K.Kyalo to manufacture cooking fats for sale. While reviewing the accounting records of the company, you discovered that the following transactions and events were recorded during the year ending 30 September 1993. (iv) Land was reported at its estimated selling price, which is substantially higher than its cost. The increase in value was included in the income statement. (v) The personal assets of M.Mutiso and KKyalo are not included in the financial statements of the business although M.Mutiso and K.Kyalo are agreeable to guaranteeing the bank overdraft of the business. Required: For each of the above items, explain which basis of accounting principle(s), concept(s) or convection(s), if any, are violated or observed. In each case, indicate the correct treatment
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urses > Fundamentals of Accounting > General › CAT-LDP 109: FUNDAMENTALS OF ACCOUNTING Saturday 2nd J
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You have been appointed as an accountant of M.K. Industries a company formed by Mr Mutiso and
Mr K.Kyalo to manufacture cooking fats for sale. While reviewing the accounting records of the
company, you discovered that the following transactions and events were recorded during the year
ending 30 September 1993.
Stock
Cash
(1) Stock was acquired at sh.29 per unit, throughout the current year, until the last purchase (which
was still in raw materials state at the end of the year) was made in September 1993. At that time the
company was able to negotiate a special price and acquired 10,000 units at sh.25 per unit. The
purchase was recorded as follows:
Sh.
290,000
This course
101
Sh.
Revenue
(ii) On 2 January 1993 a new truck was purchased for sh.270, 000. The truck had an estimated useful
life of five years and a residual value of sh.20, 000. Depreciation expenses for the year (straight-line
method) was recorded as follows to avoid reporting a net operating loss:
Depreciation expense:
trucks
sh.20, 000
sh.20, 000
Provision for depreciation:
trucks
(iii) M.K. Industries purchased an expensive special-purpose machine with an estimated useful life of
10 years. Proper installation of the machine required that it be set in the concrete floor of the factory.
Once the machine was installed the assistant factory manager argued that the machine had no resale
value and thus directed that the entire cost of the machine should be written off in the current year.
250,000
40,000
(iv) Land was reported at its estimated selling price, which is substantially higher than its cost. The
increase in value was included in the income statement.
16
(v) The personal assets of M.Mutiso and K.Kyalo are not included in the financial statements of the
business although M.Mutiso and K.Kyalo are agreeable to guaranteeing the bank overdraft of the
business.
Required:
O
A
hp
15
W
Transcribed Image Text:cke/mod/quiz/attempt.php?attempt=876769&cmid=38254 wered of Dashboard estion urses > Fundamentals of Accounting > General › CAT-LDP 109: FUNDAMENTALS OF ACCOUNTING Saturday 2nd J Events ➡ My Courses You have been appointed as an accountant of M.K. Industries a company formed by Mr Mutiso and Mr K.Kyalo to manufacture cooking fats for sale. While reviewing the accounting records of the company, you discovered that the following transactions and events were recorded during the year ending 30 September 1993. Stock Cash (1) Stock was acquired at sh.29 per unit, throughout the current year, until the last purchase (which was still in raw materials state at the end of the year) was made in September 1993. At that time the company was able to negotiate a special price and acquired 10,000 units at sh.25 per unit. The purchase was recorded as follows: Sh. 290,000 This course 101 Sh. Revenue (ii) On 2 January 1993 a new truck was purchased for sh.270, 000. The truck had an estimated useful life of five years and a residual value of sh.20, 000. Depreciation expenses for the year (straight-line method) was recorded as follows to avoid reporting a net operating loss: Depreciation expense: trucks sh.20, 000 sh.20, 000 Provision for depreciation: trucks (iii) M.K. Industries purchased an expensive special-purpose machine with an estimated useful life of 10 years. Proper installation of the machine required that it be set in the concrete floor of the factory. Once the machine was installed the assistant factory manager argued that the machine had no resale value and thus directed that the entire cost of the machine should be written off in the current year. 250,000 40,000 (iv) Land was reported at its estimated selling price, which is substantially higher than its cost. The increase in value was included in the income statement. 16 (v) The personal assets of M.Mutiso and K.Kyalo are not included in the financial statements of the business although M.Mutiso and K.Kyalo are agreeable to guaranteeing the bank overdraft of the business. Required: O A hp 15 W
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