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Question 1 On 1st December 2011, Betty, Alvin and Yong started

Question 1

On 1st December 2011, Betty, Alvin and Yong started a Watch trading company, Baywatch Pte. Ltd. with a paid up capital of $150,000 to be subscribed equally by the three. The business agreed to take over from Betty her existing watch retail and servicing equipment based on a valuation of $50,000 in lieu of her cash subscription for her shares. Alvin and Yong contributed cash for their share of the subscription.

December 1st, a shop lease was signed for $2,000 per month for two years with an option to extend for an additional year. A month’s deposit was required plus three months Rental for December 2011 to 28th February 2012. These were paid immediately.

December 2nd, $50,000 cash purchases were made for Watches from the distributor.

December 5th, Office Equipment worth $5,000 was purchased. $2,000 was paid while the remaining $3,000 will be paid over three installments at each month end, commencing at end of the December. No interests are charged for this installment plan.

December 23rd, $50,000 Sales were made. $30,000 of the Sales were cash Sales while the balance will be paid on 24th January 2012. The cost of the Watches sold is $18,000.

December 24th, a $40,000 bank loan was taken with plans to expand the business. The full amount will be paid only at the end of 24 months.

December 31st, Depreciation for the Office Equipment was estimated at $200 for the month of December.

Salaries for the year due amounted to $3,000, to be paid on the 2nd of January 2012.

General Expenses including utilities, printing costs etc. were paid on 31st December 2011. The bills came up to $1,000.

A phone reminder on December 31 from the Supplier of the Office Equipment purchased on December 5th that payment is due. Full payment was made on the same day.

Rental Expenses for December adjusted.

The bank statement shows a Bank Charge of $100 for December

Required:

(a) Prepare the Statement of Financial Position as at 31 December.

Explain the following Concepts and conventions used in Accounting. In your explanation, discuss the implications or limitations of these practices when reading Financial statements

(i) Business Entity concept

(ii) Accrual concept , Revenue Recognition and Matching

(iii) Historical Costs and valuation

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