Application of accounting policies, principles & financial statements of a sole trader and partnership form of business organization.
Understand and apply accounting policies and principles
1 Distinguish between accounting policies, accounting estimates and measurement bases.
2 Identify the documents and describe the procedure relating to credit transactions.
3 Explain nature and objectives of financial accounting.
4 Evaluate the qualitative characterestics of financial information.
Be able to prepare financial statements of a sole trader and partnership form of business organization.
1 Compute the amount of depreciation using different methods and explain resulting charges to the income statement.
2 Differentiate between capital and revenue expenditure.
3 Prepare simple financial statements from the trial balance for a sole trader and partnership firm.Purpose of this assignment
Accounting is concerned with collecting, analysing and communicating financial information. This information is useful for a range of users to help them make better judgements and decisions concerning a business. Financial information and decisions exert an enormous influence over the way in which a business operates. This assignment will help you to understand and apply accounting policies, accounting estimates and measurement bases and to be able to prepare financial statements of a sole trader and partnership form of business organization.
Scenario ‘A'
Given below are some business transactions of ABC Traders, a retail electronic goods dealer, for the month of December 2016:
Scenario ‘B'
The trial balance of Bader Traders( a retail Electronic goods dealer) for the year ended 31st December 2016 is given below:
The following additional information is available:
i. Inventory at the end of the year has been valued at cost at OMR 90,000.
ii. Salaries of OMR 13,300 were still outstanding at the year end.
iii. Rent expense includes a prepayment of OMR 18,000. Rent paid in advance for the month of January, February 2017.
iv. Depreciation for the year ended 31 December 2016 has still to be allowed for as follows:
- Office Building : 5 % per annum using the straight line method; and
- Office Equipment: 15% per annum using the reducing balance method
Scenario ‘C'
Hashim, Salman and Zayed are partners in the ABC partnership firm, sharing profits in the ratio of 2:2:1 respectively. Their capital and current account balances on 1st January 2016 were as follows.
The additional information is given below:
i. Interest at 9% per annum is given on the fixed capital amounts.
ii. Salaries of OMR 10,000 per annum are credited to partners Salman and Zayed‘s current account.
iii. The partnership profit for the year ended 31st December 2016 was OMR 90,000 and the partners had made drawings of: Hashim OMR 30,000; Salman OMR 24,000; Zayed OMR 20,000 during the year.
iv. Interest on drawings is charged at 5 % of the year -end balance.
ASSIGNMENTS TASKS
Task 1
LO1- AC 1.1 -Distinguish between accounting policies, accounting estimates and measurement bases. ( P, M1)
1.1 The preparation of a company's financial statements is of great importance in determining the firm's financial stability and in understanding the firm's ability to operate in the future without facing liquidity issues. The financial statements must "present fairly" the financial position, financial performance and cash flows of an entity and therefore requires proper use of accounting theories and techniques. Accounting policies and accounting estimates serve this purpose by ensuring that the accounting data recorded in the company books are valid in terms of regulatory requirements and financial reporting accuracy.
To achieve pass you must;
Distinguish between accounting policies, accounting estimates and measurement bases.
To achieve M1, you will need to make effective judgements at distinguishing between accounting policies and estimates using relevant examples of accounting policies, accounting estimates and measurement bases.
(You may use financial information given in the above scenario ‘B' and from Task 7)
Task 2
LO1- AC 1.2 - Identify the documents and describe the procedure relating to credit transactions. (P,M2 )
1.2 Identify and explain the various source documents, books of prime entry for the transactions of ABC Traders for the month of December 2016 and describe the procedures relating to credit transactions, from the financial information given in scenario (A).
To achieve pass you must;
Identify the various source documents, books of prime entry for the transactions of ABC Traders for the month of December 2016 and describe the procedures relating to credit transactions, from the financial information given in scenario (A)
To achieve M2, you will need to apply relevant accounting concepts and should use range of information's to identify source documents for the financial information given in scenario (A).
You need to apply the principles of double entry system to describe the procedure relating to credit transactions using information given in scenario (A).
Task 3
LO1- AC 1.3 - Explain nature and objectives of financial accounting. ( P, M1 )
1.3 Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers (Elliot, Barry & Elliot, Jamie: Financial accounting and reporting).
Explain nature and objectives of financial accounting. Explain for what purpose would the different user groups need accounting information?
(You may use financial information given in scenario B , C and Task 7 )
To achieve pass you must;
Explain nature and objectives of financial accounting and explain for what purpose would the different user groups need accounting information?
To achieve M1, you will make effective judgements about the purpose of financial accounting information for different user groups (external & internal) using relevant examples of the elements of financial statements.
Task 4
LO1- AC 1.4 - evaluate the qualitative characterestics of financial information .(P, M1,D1)
1.4 To meet these users' needs, it can be argued that accounting information should possess certain key qualities. Critically evaluate the qualitative characteristics of financial information.
(You may use financial information given in scenario B, C and Task 7 )
To achieve pass you must;
Evaluate the qualitative characteristics of financial information.
To achieve M1, you will need to apply effective approach & judgements to evaluate the qualitative characteristics of financial information using appropriate examples.
To achieve D1, you should justify the conclusions drawn on the basis of relevant accounting policies, principles and concepts in critically evaluating the qualitative characteristics of financial information.
Task 5
LO 3- AC 3.1 - compute the amount of depreciation using different methods and explain resulting charges to the income statement.(P, M2, M3 , D2)
Tanner Ltd, Sport goods manufacturer and dealer, purchased machinery on 1 January 2014, at a cost of OMR 200,000. The machinery has an expected life of five years and a residual value of OMR 20,000.
Required:
i. What is the purpose of charging depreciation in the accounts?
ii. Compute depreciation on machinery for Tanner Ltd for minimum 3 years using straight line method and reducing balance method( rate of depreciation in 15 % per annum) and assessing its resulting charges to the financial statements by preparing Income statement (extract) and Statement of financial position (extract) for Financial years 2014, 2015 & 2016).
iii. You are also required to prepare non-current asset account, Accumulated depreciation account for the financial years ended 31st December 2014, 2015 and 2016.
To achieve pass you must;
Compute the amount of depreciation using different methods and explain resulting charges to the income statement.
To achieve M2, you will need to apply relevant accounting policies, accounting estimates and measurement bases and a range of methods to compute the amount of depreciation correctly using different methods and explaining resulting charges to the financial statements.
To achieve M3, you will need to apply a range of methods of presentation, appropriate structure and approach for computation of depreciation and technical language should be accurately used.
To achieve D2, you should take an effective approach to independent research to study accounting policies and principles, methods of computing depreciation and in assessing its resulting charges to the financial statements .You will have met the deadline to submit the tasks and achieve the unit assessment criteria.
Task 6
LO 3- AC 3.2 differentiate between capital and revenue expenditure. (P, M2,D1)
Compare and contrast between capital and revenue expenditure with examples. (You may use financial information given in scenario A & B).
To achieve pass you must;
Differentiate between capital and revenue expenditure.
To achieve M2 you will need to apply relevant accounting policies, accounting estimates and rules of double entry to differentiate between capital and revenue expenditure using relevant examples from the elements financial statements.
To achieve D1, you should justify the conclusions drawn on the basis of relevant accounting policies & rules at differentiating capital & revenue expenditure and in assessing its resulting charges to the financial statements using appropriate examples.
Task 7
LO3 - AC 3.3- prepare simple financial statements from the trial balance for a sole trader and partnership firm. (P, M3, D2, D3)
(A) Prepare an Income Statement for the year ended 31st December 2016 and a Statement of Financial Position of Bader Traders as at 31 December 2016, (showing full workings) from the financial information given in scenario (B).
3.3 (B) Prepare appropriation account, the partners' capital and current accounts in respect of the year ended 31st December 2016 of ABC partnership firm from the financial information given in scenario (C).
To achieve pass you must;
Prepare financial statements from the trial balance for a sole trader and partnership firm using financial information given in scenario B & C .
To achieve M3 you will need to prepare correctly the financial statements for a sole trader and partnership firm, using appropriate structure, approach and prescribed formats.
To achieve D2 you should take an effective approach to independent research to prepare the financial statements for a sole trader and partnership firm. You will have met the deadline to submit the tasks and achieve the unit assessment criteria.
To achieve D3 you should to apply lateral thinking to relevant accounting policies and principles of financial accounting in preparation of financial statements for a sole trader and partnership firm in the prescribed formats and in commenting on the significant features revealed by the financial statements.