B.COM I ACCOUNTING REGULAR. S.Hussain

Size: px

Start display at page:

Download "B.COM I ACCOUNTING REGULAR. S.Hussain"

Ira Allen
6 years ago
Views:

1 The workings under the heading of Additional Working are not required according to the requirement of the examiner. These are only for understanding the solutions. For more help, visit B.COM I ACCOUNTING REGULAR Compiled and Solved by: S.Hussain

2 ACCOUNTING 2004 REGULAR Instructions: Attempt any five questions. Compiled & Solved by: S.Hussain Q.No.1 WORK SHEET GIVEN Following is the pre-closing trial balance of Adnan Traders was on Dec. 31, 2003: Debit Credit Cash 30,000 Accounts receivable 20,000 Allowance for bad debts 200 Furniture 60,000 Allowance for depreciation Furniture 6,400 Adnan Capital 119,800 Office supplies 6,000 Sales 200,000 Cost of goods sold 160,000 Rent expense 20,000 Prepaid advertising 10,000 Salaries expense 20, , ,200 Data for Adjustment on December 31, 2003: (i) Office supplies unused Rs.2,000. (ii) Rent expense for the year was Rs.10,000. (iii) Prepaid advertising was Rs.6,000. (iv) Salaries expense for the year was Rs.25,000. (v) Depreciation on furniture was estimated at Rs.6,000. (vi) Allowance for bad debts was estimated at 10% of year end accounts receivable. REQUIRED Prepare a Ten-Column work sheet. SOLUTION 1 ADNAN TRADERS WORK SHEET FOR THE PERIOD ENDED 31 DECEMBER 2003 B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 2

3 Particulars Cash Accounts receivable All for bad debts Furniture All for depreciation (F) Adnan Capital Office supplies Sales Cost of goods sold Rent expense Prepaid advertising Salaries expense Office supplies expense Prepaid rent Advertising expense Salaries payable Depreciation expense Bad debts expense Net loss Trial Balance DR. 30,000 20, ,000 6, ,000 20,000 10,000 20, ,200 CR. 6, , , ,200 Adjustments DR. 5,000 4,000 10,000 4,000 6,000 2,200 31,200 CR. 2,200 6,000 4,000 10,000 4,000 5,000 31,200 Adjusted Trial DR. 30,000 20,000 60,000 2, ,000 10,000 6,000 25,000 4,000 10,000 4,000 6,000 2, ,200 CR. 2,000 12, , ,000 5, ,200 Income Statement DR. 160,000 10,000 25,000 4,000 4,000 6,000 2, , ,200 CR. 200, ,000 11, ,200 Balance Sheet DR. 30,000 20,000 60,000 2,000 6,000 10, ,000 11, ,200 CR. 2,000 12, ,800 5, , ,200 Compiled & Solved by: S.Hussain B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 3

4 Q.No.2 ADJUSTING, CLOSING AND REVERSING ENTRIES GIVEN The accountant of Kamran Company collected the following data for adjustments as of December 31, 2003: (i) The prepaid insurance account showed a debit balance of Rs.9,000 representing premium of a 3- year insurance paid on September 1, (ii) On October 1, 2003, a pre-payment of Rs.7,200 for advertisement for one year in a monthly magazine beginning from that date was recorded in the advertisement expense account. (iii) On August 1, 2003, the company had sub-let a portion of its building receiving one-year s rent of Rs.3,600 in advance at that time. This was credited in full to the rent income account. (iv) The office supplies expense account had a balance of Rs.5,000 before adjustment. The actual supplies used during the year Rs.1,500. (v) The company owned a Rs.12,000 6-month note receivable dated September 1, The note bore interest at 10% p.a. Record the interest accrued on December 31, (vi) Interest of Rs.60 was accrued on notes payable at December 31, REQUIRED Give in General Journal the necessary adjusting, closing and reversing entries for the above cases. SOLUTION 2 KAMRAN COMPANY ADJUSTING ENTRIES FOR THE PERIOD ENDED 31 DECEMBER 2003 Date Particulars P/R Debit Credit 1 Insurance expense (9,000 x 4/36) 1,000 Prepaid insurance 1,000 (To adjust the prepaid insurance account) 2 Prepaid advertising (7,200 x 9/12) 5,400 Advertising expense 5,400 (To adjust the advertising expense) 3 Rent income (3,600 x 7/12) 2,100 Unearned rent 2,100 (To adjust the rent income) 4 Office supplies (5,000 1,500) 3,500 Office supplies expense 3,500 (To adjust the office supplies expense) 5 Interest receivable (12,000 x 10% x 4/12) 400 Interest income 400 (To adjust the accrued interest on notes receivable) 6 Interest expense 60 Interest payable 60 (To adjust the accrued interest expense) B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 4

5 KAMRAN COMPANY CLOSING ENTRIES FOR THE PERIOD ENDED 31 DECEMBER 2003 Date Particulars P/R Debit Credit 1 Expense and revenue summary 4,360 Insurance expense 1,000 Advertising expense (7,200 5,400) 1,800 Office supplies expense 1,500 Interest expense 60 (To close the various expenses accounts) 2 Rent income (3,600 2,100) 1,500 Interest income 400 Expense and revenue summary 1,900 (To close the various income accounts) 3 Capital 2,460 Expense and revenue summary 2,460 (To close the expense and revenue summary account) KAMRAN COMPANY REVERSING ENTRIES FOR THE PERIOD OPENING 1 JANUARY 2004 Date Particulars P/R Debit Credit 1 Advertising expense 5,400 Prepaid advertising 5,400 (To reverse the advertising expense) 2 Unearned rent 2,100 Rent income 2,100 (To reverse the rent income) 3 Office supplies expense 3,500 Office supplies 3,500 (To reverse the office supplies expense) 4 Interest income 400 Interest receivable 400 (To reverse the accrued interest income) 5 Interest payable 60 Interest expense 60 (To reverse the accrued interest expense) Q.No.3 INCOME STATEMENT AND BALANCE SHEET GIVEN Rehan & Co. prepared a work sheet on December 31, Shown below are the income statement and balance sheet columns of that work sheet: Income Statement Balance Sheet Debit Credit Debit Credit Cash 25,000 Accounts receivable 20,000 Inventory, January 1, ,000 Office equipment 80,000 Allowance for depreciation Equipment 4,000 B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 5

6 Rehan Capital 100,000 Rehan Drawings 60,000 Sales 300,000 Sales returns & allowance 10,000 Purchase 150,000 Purchase return & allowance 5,000 Salaries expense 25,000 Transportation in 5,000 General expense 5,000 Insurance expense 3,000 Depreciation expense Equipment 1,000 Salaries payable 5,000 Prepaid insurance 10,000 Inventory, Dec. 31, ,000 30, , ,000 Net income 116, ,000 Rs. 335, , , ,000 REQUIRED From the above data prepare an income statement and a classified balance sheet as on December 31, 03. SOLUTION 3 REHAN & CO. INCOME STATEMENT FOR THE PERIOD ENDED 31 DECEMBER 2003 Sales revenue 300,000 Less: Sales returns and allowance (10,000) Net sales 290,000 Less: Cost of Goods Sold: Merchandise inventory (beg) 20,000 Add: Net Purchases: Purchases 150,000 Add: Transportation in 5,000 Delivered purchases 155,000 Less: Purchase returns and allowance (5,000) Net purchases 150,000 Merchandise available for sale 170,000 Less: Merchandise inventory (end) (30,000) Cost of goods sold (140,000) Gross profit 150,000 Less: Operating Expenses: Salaries expense 25,000 General expense 5,000 Insurance expense 3,000 Depreciation expense 1,000 Total operating expenses (34,000) Net profit 116,000 B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 6

7 REHAN & CO. BALANCE SHEET AS ON 31 DECEMBER 2003 ASSETS EQUITIES Current Assets: Liabilities: Cash 25,000 Salaries payable 5,000 Accounts receivable 20,000 Total liabilities 5,000 Merchandise inventory 30,000 Prepaid insurance 10,000 Owner s Equity: Total current assets 85,000 Capital 100,000 Add: Net profit 116,000 Fixed Assets: 216,000 Office equipment 80,000 Less: Drawings (60,000) Less: All for depreciation (4,000) Total owner s equity 156,000 Total fixed assets 76,000 Total assets 161,000 Total equities 161,000 Q.No.4 PARTNERSHIP LIQUIDATION GIVEN Azam, Akram and Anwar were partners in a firm. They shared profits and losses in the ratio of 2:2:1. On June 30, 2003, they decided to liquidate the firm. Before the liquidation, the balance sheet of the firm was as under: BALANCE SHEET AS ON JUNE 30, 2003 ASSETS EQUITIES Cash 40,000 Notes payable 7,500 Other assets 110,000 Accounts payable 30,000 Azam Capital 50,000 Akram Capital 50,000 Anwar Capital 12, , ,000 The other assets were sold for Rs.3,000. Anwar was personally insolvent. REQUIRED (i) Prepare a liquidation summary. (ii) Give journal entries to record the liquidation process. B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 7

8 SOLUTION 4 (i) PARTNERSHIP LIQUIDATION SUMMARY FOR THE PERIOD ENDED 30 JUNE 2003 Cash Other Assets Notes Payable Accounts Payable Azam Capital Akram Capital Anwar - Capital Balances 40, ,000 7,500 30,000 50,000 50,000 12,500 Sale of other assets 3,000 (110,000) (42,800) (42,800) (21,400) Balances 43, ,500 30,000 7,200 7,200 (8,900) Notes payable paid (7,500) --- (7,500) Balances 35, ,000 7,200 7,200 (8,900) Payment of a/c. payable (30,000) (30,000) Balances 5, ,200 7,200 (8,900) Capital deficiency met 8, ,900 Balances 14, ,200 7, Distribution of cash (14,400) (7,200) (7,200) --- Balances SOLUTION 4 (ii) PARTNERSHIP GENERAL JOURNAL FOR THE PERIOD ENDED 30 JUNE 2003 Date Particulars P/R Debit Credit 1 Cash 3,000 Realization 107,000 Other assets 110,000 (To record the sale of other assets on loss) 2 Notes payable 7,500 Cash 7,500 (To record the payment of notes payable) 3 Accounts payable 30,000 Cash 30,000 (To record the payment of accounts payable) 4 Azam Capital (107,000 x 2/5) 42,800 Akram Capital (107,000 x 2/5) 42,800 Anwar Capital (107,000 x 1/5) 21,400 Realization 107,000 (To record the distribution of loss on realization) 5 Cash 8,900 Anwar Capital (21,400 12,500) 8,900 (To record the capital deficiency met by Anwar) 6 Azam Capital (50,000 42,800) 7,200 Akarm Capital (50,000 42,800) 7,200 Cash (40, ,000 7,500 30, ,900) 14,400 (To record the distribution of remaining cash) B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 8

9 Q.No.5 VALUATION OF ACCOUNTS RECEIVABLE GIVEN On December 31, 2002, the balance sheet of Karim & Co. showed the following balance: Accounts receivable Rs. 200,000 Less: Allowance for bad debts Rs. 4,000 Rs. 196,000 During the year 2003 total sales (including cash sales Rs.50,000) amounted to Rs.300,000. An accounts receivable Rs.3,500 was written off. A previously written off accounts receivable of Rs.1,000 was subsequently recovered to the extent of Rs.300. On December 31, 2003 the accounts receivable showed a debit balance of Rs.250,000. However, an analysis of accounts receivable subsidiary ledger revealed that a customer s account showed a credit balance of Rs.10,000. On this date the company estimated 5% accounts receivable at the year-end as uncollectible. REQUIRED (a) Give the General Journal entries relating to the above information including entries to adjust & close the bad debts expense. (b) Set up allowance for bad debts account and post the above entries in the account. Rule off and balance the account. (c) Show how the relevant account will be reported in balance sheet on December 31, SOLUTION 5 (a) KARIM & CO. GENERAL JOURNAL Date Particulars P/R Debit Credit 1 Cash 50,000 Accounts receivable 250,000 Sales 300,000 (To record the goods sold for cash and on credit) 2 Allowance for bad debts 3,500 Accounts receivable 3,500 (To record the write off customer s account) 3 Accounts receivable 300 Allowance for bad debts 300 (To record the recovery of written off account) 4 Cash 300 Accounts receivable 300 (To record the cash received from customer) 5 Accounts receivable 10,000 Advance from customer 10,000 (To record the advance received from customer) 6 Bad debts expense 12,200 Allowance for bad debts 12,200 (To record the bad debts expense for the period) 7 Expense and revenue summary 12,200 Bad debts expense 12,200 (To close the bad debts expense account) B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 9

10 Computation of Bad Debts Expense: Accounts receivable 250,000 Add: Credit balance of customer s account 10,000 Total accounts receivable 260,000 Rate of bad debts 5% Allowance for bad debts closing balance 13,000 Add: Write off accounts 3,500 16,500 Less: Recovered previously written off account (300) 16,200 Less: Allowance for bad debts opening balance (4,000) Bad debts expense for the period 12,200 SOLUTION 5 (b) General Ledger Allowance for Bad Debts 2 Accounts receivable 3,500 1 Jan 03 Balance 4, Dec 03 c/d balance 13,000 3 Accounts receivable Bad debts expense 12,200 16,500 16,500 1 Jan 04 b/d balance 13,000 SOLUTION 5 (c) KARIM & CO. BALANCE SHEET AS ON 31 DECEMBER 2003 Assets Accounts receivable 260,000 Less: Allowance for bad debts (13,000) 247,000 Equities Q.No.6 INVENTORY VALUATION GIVEN Vaqar & Co. uses Perpetual System and uses LIFO inventory valuation method. The records of the company show the following purchases and sales transactions for the month of September 2003: September 1 Inventory 5,000 Rs.5 September 9 Purchase 2,500 Rs.6 September 14 Sales 2,500 Rs.12 September 19 Purchase 1,600 Rs.7 September 21 Sales 2,200 Rs.12 September 24 purchase 3,000 Rs.8 September 29 Sales 2,500 Rs.12 REQUIRED Give entries in General Journal to record total purchases, total cost of goods sold and total sales on September 30. Assume that all transactions were on account. B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 10

11 SOLUTION 6 VAQAR & CO. INVENTORY VALUATION PERPETUAL INVENTORY SYSTEM LIFO METHOD FOR THE PERIOD SEPTEMBER 2003 Date Purchases/Received Sales/Issued Balance Units Unit cost Total cost Units Unit cost Total cost Units Unit cost 1 Sep 5, ,000 9 Sep 2, ,000 5, ,000 2, , Sep 2, ,000 5, , Sep 1, ,200 5, ,000 1, , Sep 1, ,200 4, , , Sep 3, ,000 4, ,000 3, , Sep 2, ,000 4, , ,000 7,100 50,200 7,200 49,200 4,900 26,000 Computation of Cost of Ending Inventory: 4,400 Rs.5 each 22, Rs.8 each 4,000 4,900 Cost of ending inventory 26,000 Computation of Cost of Goods Sold: 2,500 Rs.6 each 15,000 1,600 Rs.7 each 11, Rs.5 each 3,000 2,500 Rs.8 each 20,000 7,200 Cost of goods sold 49,200 OR Merchandise inventory (opening) 25,000 Add: Net purchases during the period 50,200 Merchandise available for sale 75,200 Less: Merchandise inventory (ending) (26,000) Cost of goods sold 49,200 Computation of Total Sales: 2,500 Rs.12 each 30,000 2,200 Rs.12 each 26,400 2,500 Rs.12 each 30,000 7,200 Total sales 86,400 Total cost B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 11

12 Computation of Total Purchases: 2,500 Rs.6 each 15,000 1,600 Rs.7 each 11,200 3,000 Rs.8 each 24,000 7,100 Total purchases 50,200 VAQAR & CO. GENERAL JOURNAL FOR THE MONTH OF SEPTEMBER 2003 Date Particulars P/R Debit Credit 1 Merchandise 50,200 Accounts payable 50,200 (To record the merchandise purchased on account) 2 Cost of goods sold 49,200 Merchandise 49,200 (To record the cost of goods sold) 3 Accounts receivable 86,400 Sales 86,400 (To record the merchandise sold on account) Q.No.7 ACCOUNTING FOR COMPANIES GIVEN The following transactions related to Salman Co. Ltd.: 1. The company offered 50,000 shares of Rs.10 each at Rs.15. the company received application for 65,000 shares. The company finalized the allotment and the excess money was refunded. 2. The company declared stock dividend of Rs.100,000. The company issued 9,000 shares of Rs.10 each in settlement of stock dividend. 3. The company purchased land worth Rs.500,000 and issued 45,000 shares of Rs.10 each to vendor. 4. The company purchased machine and in consideration thereof issued 16,000 shares of Rs.10 each. The market price of the share was Rs The company issued 2,000 debentures of Rs.100 each at par, repayable after five years at 5% redemption premium. 6. The company issued 1,000 debentures of Rs.100 each at Rs.95 repayable after five years at Rs.105. REQUIRED Record the above transactions in the General Journal of the company. SOLUTION 7 KHAN & CO. LTD. GENERAL JOURNAL Date Particulars P/R Debit Credit 1 Bank (65,000 x 15) 975,000 Ordinary shares application 975,000 (To record the shares applications received at par) 2 Ordinary shares application 750,000 Ordinary shares capital (50,000 x 10) 500,000 Ordinary shares premium (50,000 x 5) 250,000 (To record the ordinary shares issued at premium) B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 12

13 Date Particulars P/R Debit Credit 3 Ordinary shares application 225,000 Bank (15,000 x 15) 225,000 (To record the refund of excess money to the public) 4 Retained earnings 100,000 Stock dividend payable 100,000 (To record the stock dividend declared by the company) 5 Stock dividend payable 100,000 Ordinary shares capital (9,000 x 10) 90,000 Ordinary shares premium 10,000 (To record the shares issued at premium in settlement of stock dividend) 6 Land 500,000 Ordinary shares capital (45,000 x 10) 450,000 Ordinary shares premium 50,000 (To record the purchase of land by issuing shares at premium) 7 Machine (16,000 x 12.50) 200,000 Ordinary shares capital (16,000 x 10) 160,000 Ordinary shares premium (16,000 x 2.50) 40,000 (To record the purchase of machine by issuing shares at premium) 8 Bank (2,000 x 100) 200,000 Loss on redemption (2,000 x 5) 10,000 Debentures payable (2,000 x 100) 200,000 Premium on redemption (2,000 x 5) 10,000 (To record the debentures issued at par and payback at premium) 9 Bank (1,000 x 95) 95,000 Discount on debenture (1,000 x 5) 5,000 Loss on redemption (1,000 x 5) 5,000 Debentures payable (1,000 x 100) 100,000 Premium on redemption (1,000 x 5) 5,000 (To record the debentures issued at discount and payback at premium) Q.No.8 DEPRECIATION GIVEN Arsalan & Co. records the acquisition of Vehicles in the account titled as Delivery Equipment. Following are the details of vehicles purchased. Date of Purchase Type of Vehicles Cost January 1, 2001 Truck 500,000 July 1, 2001 Car 250,000 October 1, 2002 Van 300,000 It was decided to depreciate delivery equipment at 10% per annum on the Straight Line Method. B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 13

14 REQUIRED (a) Write up delivery equipment account, depreciation expense account and allowance for depreciation account for the year ended December 31, 2001, 2002 and Close and balance (as the case may be) the accounts at each year end. Show computations of each year s depreciation charges. (b) Prepare balance sheet (partial) on December 31, 2003 showing the relevant account. SOLUTION 8 (a) Computation of Depreciation Expense by Straight Line Method: Truck: Annual depreciation = (Cost Scrap value) x Rate of depreciation Annual depreciation = 500,000 x 10% Annual depreciation = 50,000 Depreciation expense for the period 31 December 2001 = 50,000 Depreciation expense for the period 31 December 2002 = 50,000 Depreciation expense for the period 31 December 2003 = 50,000 Computation of Depreciation Expense by Straight Line Method: Car: Annual depreciation = (Cost Scrap value) x Rate of depreciation Annual depreciation = 250,000 x 10% Annual depreciation = 25,000 Depreciation expense for the period 31 December 2001 = 25,000 x 6/12 = 12,500 Depreciation expense for the period 31 December 2002 = 25,000 Depreciation expense for the period 31 December 2003 = 25,000 Computation of Depreciation Expense by Straight Line Method: Van: Annual depreciation = (Cost Scrap value) x Rate of depreciation Annual depreciation = 300,000 x 10% Annual depreciation = 30,000 Depreciation expense for the period 31 December 2002 = 30,000 x 3/12 = 7,500 Depreciation expense for the period 31 December 2003 = 30,000 GENERAL LEDGER Delivery Equipment 1 Jan 01 Truck 500, Dec 01 c/d balance 750,000 1 July 01 Car 250, , ,000 1 Jan 02 b/d balance 750, Dec 02 c/d balance 1,050,000 1 Oct 02 Van 300,000 1,050,000 1,050,000 1 Jan 03 b/d balance 1,050, Dec 03 c/d balance 1,050,000 1,050,000 1,050,000 1 Jan 04 b/d balance 1,050,000 B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 14

15 Allowance for Depreciation 31 Dec 01 c/d balance 62, Dec 01 Depreciation exp. 62,500 62,500 62,500 1 Jan 02 b/d balance 62, Dec 02 c/d balance 145, Dec 02 Depreciation exp. 82, , ,000 1 Jan 03 b/d balance 145, Dec 03 c/d balance 250, Dec 03 Depreciation exp. 105, , ,000 1 Jan 04 b/d balance 250,000 Depreciation Expense 31 Dec 01 All for depreciation 62, Dec 01 Closing 62,500 62,500 62, Dec 02 All for depreciation 82, Dec 02 Closing 82,500 82,500 82, Dec 03 All for depreciation 105, Dec 03 Closing 105, , ,000 SOLUTION 8 (b) ARSALAN & CO. BALANCE SHEET AS ON 31 DECEMBER 2003 Assets Delivery equipment 1,050,000 Less: Allowance for depreciation (250,000) 800,000 Equities Q.No.9 Write short notes on the following, giving appropriate examples in each case. (i) Principle of conservatism. (ii) Principle of consistency. (iii) Concept of business entity. (iv) Concept of going concern. B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 15

16 SOLUTION 9 (i) Principle of Conservatism: If a situation arises where there are two acceptable alternatives for reporting an item, conservatism directs the accountant to choose the alternative that will result in less net income and/or less asset amount. Conservatism helps the accountant to break a tie. It does not direct accountants to be conservative. Accountants are expected to be unbiased and objective. The basic accounting principle of conservatism leads accountants to anticipate or disclose losses, but it does not allow a similar action for gains. For example, potential losses from lawsuits will be reported on the financial statements or in the notes, but potential gains will not be reported. Also, an accountant may write inventory down to an account that is lower than the original cost, but will not write inventory up to an amount higher than the original cost. (ii) Principle of Consistency: The concept requires the consistency of treatment of like items within each accounting period and from one period to the next; it also requires that accounting policies are consistently applied. Rather, an entity is required to implement those principles that are judged most appropriate to its circumstances for the purpose of giving a true and fair view. Comparability is held to be a more important characteristic of financial statements than consistency. (iii) Concept of Business Entity: The unit for which accounting records are maintained and for which financial statement are prepared is known as business entity. The business entity concept is the principle that financial records are prepared for a distinct unit or entity regarded as separate from the individuals that own it. This will often be an incorporated company, whose treatment as a separate accounting entity is required by law. For sole traders and partnerships accounts are also prepared to reflect the transactions of the business as an accounting entity, not those of the owner(s) of the business. Changing the boundaries of the accounting entity can have a significant impact on the accounts themselves, as these will reflect the purpose of the accounts and for whom they are prepared. (iv) Concept of Going Concern: One of four fundamental accounting concepts. It is the assumption that an enterprise will continue in operation for the foreseeable future, i.e. that there is no intention and necessity to liquidate or significantly curtail the scale of the enterprise s operation. The implication of this principle is that assets are shown at cost, or at cost less depreciation, and not at their break-up values; it also assumes that liabilities applicable only on liquidation are not shown. The going concern value of a business is higher than the value that would be achieved by disposing of its individual assets, since it is assumed that the business has a continuing potential to earn profits. This assumption will underline the preparation of financial statements. If an auditor thinks that a business may not be a going concern, the auditors report should be qualified. B. C o m I A c c o u n t i n g ( R e g u l a r ) Page 16

PRINCIPLES OF ACCOUNTING b.com part I

PRINCIPLES OF ACCOUNTING b.com part I 2013 PRIVATE (SUPPLEMENTARY) Solved Paper Compiled & Solved by: Sameer Hussain Instructions: (1) Attempt any FIVE questions. (2) All questions carry equal marks. (3)