a) The historical cost concept. (6 marks)

Briefly explain the following in your own words:

a) The historical cost concept. (6 marks)

b) (i) the purpose of a statement of financial position; and

(ii) the purpose of a statement of comprehensive income (6 marks)

c) how the basic accounting principle of „prudence? affects the preparation of financial statements (4 marks)

d) how the value of inventory is calculated using the periodic weighted average method of valuation (4 marks)

Question 2 (20 marks)

KH Sdn Bhd, a trading company, had 1,000 units of industrial chairs in its stores at 1 January

2013. These were valued at a cost price of RM40 per unit. The stores records revealed the following purchases of the electrical component during January 2013:

Date Units Unit Price RM

January 1 2,000 RM41.50 83,000

January 6 2,000 RM42.00 84,000

January 14 3,000 RM43.00 129,000

January 21 1,000 RM44.00 44,000

January 27 2,000 RM46.50 93,000

During January, KH sold 8,000 units of the industrial chairs at RM100 per unit. Using the above data, apply the following methods of valuation to show the impact on the gross profit of the company for January 2013:

(a) first in first out (FIFO). (7 marks)

(b) last in first out? (LIFO). (7 marks)

(c) weighted average cost?. (6 marks)

Question 3 (30 marks)

a. PK Berhad purchased a Truck for RM 85,000 on 1^st of January 2013. It was paid by cash with a trade-in of RM 15,000 on an older lorry. The lorry was purchased on the 1^st of January 2009 for RM70, 000 and expected to have a salvage value of RM 5,000 at the end of 5 years of its useful life.

Required:

i. Calculate the depreciation per annum on the lorry. (3 marks)

ii. Calculate the net book value of the lorry as at 31^st December 2012. (6 marks)

iii. Record the journal entry for the purchase of the truck. (6 marks)

b. Prepare adjusting journal entries for Wan Catering in the GENERAL JOURNAL for the year ended 31^st December 2012, for each of these situations. Narratives for each entry are required.

i. Wan Catering received RM5, 000 from a customer on November 15, 2012, for catering service to be performed in December 2013. The RM5, 000 was recorded in Unearned Revenue in November 2012. By the end of December, the service has been performed.

ii. Wan Catering invested RM50, 000 into a 5% government bond some years ago. The 5% interest was due to be paid on 31st December every year.

However, Wan Catering had yet to receive the payment from the government by 31st

December 2012.

iii. Wan Catering paid a total salary of RM28, 000 every month to all of its staffs.

Due to some unforeseen circumstances, the salaries for the final week amounting to RM 7,000 have not been paid.

iv. Wan Catering paid RM12, 000 for insurance for 12 months beginning on 1^st September 2012. The amount was recorded as Prepaid Insurance on 1^st September.

v. Wan Catering purchased a RM3, 500 kitchen equipment on 1^st January 2012.

It is expected to have a useful life of three years and it will worth about RM 500 at the end of three years. Wan Catering used the straight-line depreciation method.

Question 4 (30 marks)

Chandra runs a Grass Mowing business. The following year-end unadjusted trial balance is for Chandra Gardening as at 31 December 2013. The Capital of Chandra as at 1 January 2012 was RM 400,000.

Chandra Grass Mowing

Unadjusted Trial Balance as at 31 December 2010

RM RM

Building 490,000

Accumulated Depreciation – Building 79,200

Tools & Equipment 30,000

Accumulated Depreciation – Tools & Equipment 16,500

Motor Vehicle 114,800

Loose Tools Supplies 38,400

Prepaid Insurance 6,000

Cash 28,750

Accounts Payable 15,600

Chandra, Capital 400,000

Chandra, Withdrawals16,000

Services Fees Earned 319,000

Salaries and Wages Expense 72,600

Insurance Expense 16,650

Repair and Maintenance Expense 11,700

Water 3,400

Electricity 2,000

830,300 830,300

Additional information:

i. Depreciation on building is at 2% per annum

ii. Depreciation on office equipment is at 5% per annum.

iii. Depreciation on motor vehicle is at 20% per annum by using reducing balance method.

iv. Accrued Salaries and Wages was RM 7,400.

v. Insurance of RM 6,000 was paid in advance for a period of 6 months beginning 1 December 2012. The amount was recorded as prepaid insurance when it was paid.

Required:

(a) Prepare a statement of comprehensive income for the year ended 31 December 2013 for

Chandra Grass Mowing. (14 marks)

(b) Prepare a statement of financial position as at 31 December 2013 for Chandra Grass Mowing. (16 marks)