Question 1 For the purposes of Question 1 you are not required to consider GST. On 1 February 2012 Reece Ramon commenced Ramon's Plant Supplies by obtaining a business loan from BA Bank for $20 000. The bank also provided a $10 000 overdraft facility to the business. The business uses the General Journal and special journals.The following assets and liabilities were also brought into the business by Reece Ramon on 1 February(Memo 1).
• Stock costing $15 000, of which $4 000 is still owing to the supplier (Box Nursery). This amount will be paid by the business in March. The estimated price the stock may be sold for is $25 000.
• Computer system (original cost $5 000, agreed value $3 000).
a. Prepare the General Journal entries required to commence a double entry recording system on 1 February 2012. Narration is not required.
b. Explain, with reference to one accounting principle and two qualitative characteristics, the issues involved in determining the value at which the computer system was recorded.
c. With reference to the definition of a liability, explain how the bank overdraft would be treated.