- 20 Marks
FA – Mar 2023 – L1 – Q1 – Double entry bookkeeping | Inventory | The IASB’s Conceptual Framework
Explains going concern assumption, inventory valuation, faithful representation, and prepares various day books and cash book.
Question
a) The Conceptual Framework for Financial Reporting is a set of principles which underpin the foundation of financial accounting. The Conceptual Framework sets out the going concern concept as one of the important underlying assumptions for the preparation of financial statements.
Required:
Explain what is meant by ‘the assumption that an entity is operating under the going concern concept’. Support your answer with a suitable example. (3 marks)
b) A trader who trades in Machines commences business on 1 Jan 2021 and buys 200 machines, each costing GH¢50,000. During the year, he sells 150 machines at GH¢60,000 each.
Required:
How should the remaining machines be valued at the end of the year if:
i) He is forced to close down his business at the end of the year and the remaining machines will realise only GH¢30,000 each in a forced sale. (2 marks)
ii) He intends to continue the business into the next year. (2 marks)
c) One of the fundamental qualitative characteristics of useful financial information in the Conceptual Framework for Financial Reporting is ‘faithful representation’.
Required:
Explain what is meant by ‘faithful representation’. (3 marks)
d) Davidco is a trader who commenced business on January 1, 2021. He introduced capital of GH¢50,000. He bought Vehicle worth GH¢30,000 out of the capital introduced. The following transaction took place in the month of January (Jan) 2021:
- Jan 5: Davidco bought goods on credit from the following:
- Tradco: GH¢2,500, Trade Discount 10%
- Vamco: GH¢8,000, Trade Discount 10%
- Jan 8: Davidco Sold goods on credit to the following:
- Markcom: GH¢5,000, Trade Discount 20%
- Kathrine: GH¢2,000, Trade Discount 5%
- Jan 12: Davidco returned defective goods worth GH¢200 to Tradco.
- Jan 15: Davidco paid all amounts outstanding to Tradco and Vamco less cash discount of 5%.
- Jan 22: Kathrine returned spoiled goods worth GH¢300.
- Jan 24: Davidco received payment from Markcom and Kathrine of all outstanding debt less cash discount of 5%.
Required:
Prepare the following:
i) Sales day book
ii) Purchase day book
iii) Cash book
iv) Purchase returns
v) Sales returns
(10 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Day Books, Faithful Representation, Going Concern, Inventory Valuation
- Level: Level 1
- Topic: Double entry bookkeeping, Inventory, The IASB’s Conceptual Framework
- Series: MAR 2023