Referencing Styles : Harvard Question 1 (20 marks) A. What does the term accrual accounting mean in terms of the way we account for transactions. Discuss two principles or concepts which drive the use of accrual accounting. (3 marks) B. Fox Ltd has calculated profit on the 30th June 2015 to be $359700 when the following was discovered (the firm uses accrual accounting). (i) Income of $1690 for services delivered had been invoiced but not yet received in cash. (ii) The weekly wages bill for the firm is $41200. The last … View More Question 1 (20 marks) A. What does the term accrual accounting mean in terms of the way we account for transactions. Discuss two principles or concepts which drive the use of accrual accounting. (3 marks) B. Fox Ltd has calculated profit on the 30th June 2015 to be $359700 when the following was discovered (the firm uses accrual accounting). (i) Income of $1690 for services delivered had been invoiced but not yet received in cash. (ii) The weekly wages bill for the firm is $41200. The last payment for wages was on Friday 26th June. The next payment will be on Friday 3rd July. (iii) The firm had received funds of $15000 on 1st April 2015 for work to be completed by end of October 2015. 40% of the work has been completed by June 30th . (iv) A full year’s rent of $33000 was paid for the premises from which the firm operates on 1 st March 2015. (v) The firm has $40000 invested. It earns interest of 7% per annum payable quarterly. Interest was last received on 1st May for the quarter (February, March, April). (vi) Office Supplies had a balance at the beginning of the year (after adjustments) of $1200. Throughout the year $5000 in office supplies was purchased. At June 30th the value of office supplies was $1600. (vii) An amount of $10000 paid for new Office Furniture had been incorrectly coded and entered as Office Expenses. Required: (i) Make the journal entries to adjust the accounts affected where necessary (include narrations to explain the entry and any calculations). (13 marks) (ii) What would be the new profit figure after taking into account the above adjustments? (You must show calculations to get full marks Question 2 (23 Marks) A. A business executive remarked: “Accountants use a dual standard for measuring assets. Some are on the balance sheet because they have real future economic value. Others are only there because they are left over from the profit measurement process. We classify them accordingly because of that”. With regard to this remark discuss: (i) 3 examples of assets that might fit each of the two categories. (ii) How are assets usually measured? Is there a dual standard? (iii) How are assets usually classified? What is the basis for the classification of Assets? (iv) In summary, do you agree or disagree with the remark? (7 marks) B. The following balances appeared in the ledger of Lo Gloss and Co on 31st May, 2015. The transactions for June were: (i) Sales cash $123570 credit $98000 (ii) Cash collected from customers $114630 (iii) A cheque for $300 (not included in (ii)) was received from a debtor whose debt of $800 had been previously written off. (iv) Investigation of a credit balance in a debtors account showed that a credit sale of $500 for goods had not been recorded. (v) Doubtful Debts are normally provided for each month at the rate of 2 per cent of credit sales. After an analysis of accounts receivable balances on 30th June (after the transactions for June had been recorded) below, it was decided to write off all debts more than 12 months overdue and to adjust allowance for doubtful debts to agree with the uncollectable estimate given by the accounts receivable age analysis: Required: (i) Record the above information in appropriate ledger accounts including balances at beginning. Create extra accounts as necessary (either T or three column). (12 marks) (ii) Illustrate in an extract from a classified Income Statement and Balance sheet how the relevant accounts