The difference between fixed assets and currents assets

Published:

Question 1

Explain the difference between fixed assets and currents assets.

Explain the following concepts:

Business Entity Concepts

Accruals Concept

Going Concern Concept

Consistency Concept

State why it is important to differentiate between capital expenditure and revenue expenditure, and briefly explain the accounting treatment of each type of expenditure.

Plant and Machinery was purchased on 1st June 2005 for RM100,000 and 2006 using the reducing balance taking the rate as 10% method.

The framework for the preparation and presentation of financial statements states that in order to be useful, financial information should meet four objectives. These are:

Relevance

Reliability

Comparability

Understandability

Identify any five users of accounting information

Answer of question 1

The difference between fixed assets and current assets are the current assets are flexible in nature, easy to encashable and floting money to company whereas, and the fixed assets are fixed in nature in other words non-moving assets, not easy to encash, regularly depreciated. For example, the current assets such as sundry as furniture and fittings, tools, machinery, and so on.

Lady using a tablet
Lady using a tablet

Professional

Essay Writers

Lady Using Tablet

Get your grade
or your money back

using our Essay Writing Service!

Essay Writing Service

Business Entity Concept it means always business is separate and owner are separate, the affairs of a business are to be treated as being quite separate from the non-business activities of its owners.

Accrual Concept means applies equally to revenue an expense. In the accrual basis of accounting revenue is recognized when it is realized, that means when the sale is complete or not.

Consistency Concept, which means once a business had adopted on one accounting method, it should use the same way for all subsequence events for the same character unless it has sound reason to change. This cannot be done if one method is used in one year and another method is used the next year.

Capital Expenditure is the outlay resulting in the increase or acquisition of an asset or increase in the earning capacity of a business. And the revenue expenditure is means that the outlay as a necessary for the maintenance of earning capacity including the upkeep of the fixed assets in a fully efficient state. And the accounting treatment of each type of expenditure that are suppliers, utilities, salaries, marketing, training, recruitment, and so on.

(2005) RM 100,000 x 6/12 x 10% = RM5000

(2006) RM95, 000 x 10% = RM9500

Relevance: Is one more factor that must be present in the information for it to be useful. Information that's not relevant is considered as a waste of valuable time in decision making.

Reliability: the right decision based on a set of financial information would also depend on the reliability of the information. In this context, self generated information is considered to be most reliable to as compared to information gather by third parties. The user must be able to depend on the truthfulness of the information.

Comparability: ability to rank companies so as to facilitate financial decisions. Comparability is aided when companies employ similar accounting procedures, measurement concepts, classifications, basic financial statement formats, and methods of disclosure.

Understandability: this implies the expression, with clarity, of accounting information in such a way that who are generally assumed to have a reasonable knowledge of business and economic activities.

Suppliers, LHDN (Lembaga Hasil Dalam Negeri), managers, government, shareholder.

Question 2

You have been supplied with the following balances for Betsy Li, a sole trader, for the year ended 31 December 2009:

RM

Property at cost 140,000

Equipment at cost 70,000

Provision for depreciation at 01/01/09:

Property 4,200

Equipment 17,500

Purchases 385,000

Sales 592,000

Stock at 01/01/09 17,400

Discount Allowed 14,000

Discount Received 1,900

Return Outward 17,600

Wages and Salaries 43,400

Creditors 28,500

Debtors 15,800

Bank overdraft 2,900

Cash in Hand 520

Drawings 17,950

Provision for Bad debts at 01/01/09 200

General Expenses 11,400

Long term loan 20,000

Capital at 01/01/09 30,670

Stock at 31/12/09 is $21,600.

Wages and salaries outstanding at 31/12/09 are $4,100

General expenses include a prepayment for rates of $1,000.

The provision for bad debts needs increasing to $280.

Depreciation for the year has still to be provided as follows:

Property 1.5% per year using the straight line method.

Equipment 25% per year using the reducing balance method.

Lady using a tablet
Lady using a tablet

Comprehensive

Writing Services

Lady Using Tablet

Plagiarism-free
Always on Time

Marked to Standard

Order Now

Loan interest of $2,000 is outstanding.

Required:

Prepare a trial Balance for Betsy Li as at 31 December 2009.

Prepare the Income Statement and Balance Sheet for Betsy Li for the period ending 31 December 2009.

A.)

Trial Balance as at 31 December 2009

 

Debit

Credit

Capital

 

30670

Property at Cost

140000

 

Equipment at cost

70000

 

Provision for depreciation(property)

 

4200

Provision for depreciation(equipment)

 

17500

Purchase

385000

 

Sales

 

592000

Stock at 1/1/09

17400

 

Discount allowed

14000

 

Discount received

 

1900

Return outward

 

17600

Wages and Salary

43400

 

Creditors

 

28500

Debtors

15800

 

Bank overdraft

 

2900

Cash in hand

520

 

Drawings

17950

 

Provision for bad debts 1/1/09

 

200

General expenses

11400

 

Long term loan

 

20000

 

715470

715470

B)

Income Statement for the year ending 31 December 2009

 

RM

RM

RM

Sales

 

 

592000

(less) cost of goods sold

 

 

Opening stock

 

17400

Purchase

385000

 

(less) return outward

(17600)

 

Net sales

 

367400

 

 

384400

(less)closing stock

 

(21600)

 

Gross profit

 

 

(363200)

 

 

 

228800

(add)revenue

 

 

Discount received

 

 

1900

 

 

 

230700

(less)expenses

 

 

Wages and salary (43400 + 4100)

 

47500

General expenses (11400 - 1000)

 

10400

 

Discount allowed

 

14000

Depreciation of property

 

2100

Depreciation of equipment(7000-17500) = 52500X25%

13125

Provision for bad debts

 

80

 

Loan interest

 

2000

 

 

 

 

(89205)

 

 

 

141495

Provision for doubtful debt

14000 x 1.5% = 2100

70000 - 17500 = 52500 x 25% = 13125

Provision for doubtful debt

Balance c/d 280 Balance c/d 200

Income Statement 80

280 280

Balance Sheet as at 31 December 2009

Fixed assets:

Cost

Accumulated Depreciation

 

Property

140000

6300

133700

Equipment

70000

30625

39375

 

 

 

173075

 

 

 

Current assets:

 

 

Stock closing

 

21600

Debtor

15800

 

Less:)provision for doubtful debt

(280)

 

 

 

15520

Cash at hand

 

520

Prepayment of sales

 

1000

 

 

38640

 

 

 

(less)current liabilities:

 

 

Creditors

28500

 

Bank overdraft

2900

 

Accrual loan interest

2000

 

Accrual for wages

4100

 

 

 

(37500)

 

Working capital

 

 

1140

 

 

 

174215

 

 

 

 

Financed by:

 

 

 

Capital

 

30670

(add)net profit

 

141495

 

 

Lady using a tablet
Lady using a tablet

This Essay is

a Student's Work

Lady Using Tablet

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Examples of our work

172165

(less)drawing

 

(17950)

 

 

 

154215

(add)long term loan

 

 

20000

 

 

 

174215