Concepts of Money Measurement

Concepts of bullion MeasurementBusiness Entity Concept can also be known as separate entity purpose. A commerce entity concept is the financial activities are record distinct from the people who finance it such as owners, creditors, customers, and employers. The accounting records reflect the financial activities of a specific incorporated entity. So, the business should separately from the proprietor or investor. When the profit is return in to the business, the profit must be taken into account.For example, the sole trader invests available cash in the market share account. These available funds are not affecting the financial status of the business itself.Money Measurement ConceptMoney Measurement Concept is expressed in monetary term. Every transaction is records in terms of money. If the transaction cannot be measured in monetary term, consequently the transaction cannot be taken into account.Going Concern ConceptGoing concern concept is the business that expected that a business will conserve to operate its business for the next 12 months or next accounting period. This concept assumes that the business is going on steadily training for year to year without reducing its operation. When an enterprise liquidates or scale down a part of operation of the enterprise, the ability of the enterprise to continue as going concern concept is not impaired norm everyy.Materiality ConceptThis materiality concept is refers to purposes paying attention to important events and ignoring insignificant accounting items as well as suggests teeny-weeny aster purchases or improvements should be initially written rack up as an expense.Prudence conceptPrudence concept is taking a proper caution in measuring profit and income. Prudence must be exercised when preparing financial statements because of the uncertainty surrounding many transactions. In this concept, income should not be anticipated at all possible losses should be get outd for.a.) Give FOUR reasons why de rogation may occur.The definition of the depreciation is refers to noncash expense that reduces the nurse of an asset as a result of wear and tear, age, or obsolescence. Most assets lose their value over time and must be replaced once the end of their useful life is reached.The briny reason of the depreciation is due to the physical wear and tear and the passage of time. For example, the value of the car is reduced over time as new simulate is introduced to the market, or the value of used motor vehicles is lower than a similar model but new motor vehicles.The second reason is obsolescence of the asset. For instance, the old utensil in a factory is become more obsolescence due to time that the machine used. After many years, the value of the machine is depreciated because the residual or trumpery value of the asset and similar new machine is come out in the market.The third reason is passage of time. Some assets diminish in value on account of sheer passage of time, even though they are not used. For example, the patent rights, copy rights and lease hold property.The forth reason is depletion of the asset. The depletion is to provide for the consumption on charge against earnings, based on the amount of wasting natural resources that are taken out of total available reserves during an accounting period.2 b.)A firm buys a motor vehicles in January 20X5 for RM10,000. Calculate the annual depreciation for the first four years using.Reducing Balance Method, at an annual rate of 20%.Reducing Balance MethodDepreciation Reduced BalanceYear 1 (20X5) 20% x RM 10,000 = RM 2,000 (RM 10,000 2,000) = RM 8,000Year 2 (20X6) 20% x RM 8,000 = RM 1,600 (RM 8,000 1,600) = RM 6,400Year 3 (20X7) 20% x RM 6,400 = RM 1,280 (RM 6,400 1,280) = RM 5,120Year 4 (20X8) 20% x RM 5,120 = RM 1,024 (RM5, 120 1,024) = RM 4,096Straight Line Method, if the vehicle is to be sold in four years time for RM2,000.Straight Line MethodDepreciation per year === RM 2,000Dt labour Vehicle accountC tRMRM20X520X5Jan 1Bank10,000Dec 31Balance c/d10,00020X620X6Jan 1Balance b/d10,000Dec 31Balance c/d10,00020X720X7Jan 1Balance b/d10,000Dec 31Balance c/d10,00020X820X8Jan 1Balance b/d10,000Dec 31Balance c/d10,000DtProvision for Depreciation on VehicleCtRMRM20X520X5Dec 31Balance c/d2,000Dec 31Profit Loss A/C2,00020X620X6Dec 31Balance c/d4,000Jan 1Balance b/d2,000Dec 31Profit Loss A/C2,0004,0004,00020X720X7Dec 31Balance c/d6,000Jan 1Balance b/d4,000Dec 31Profit Loss A/C2,0006,0006,00020X820X8Dec 31Balance c/d8,000Jan 1Balance b/d6,000Dec 31Profit Loss A/C2,0008,0008,000Profit Loss Account ( extract ) for the year ended 31 December20X520X620X720X8Operating expenses RMRMRMRMDepreciation of Motor Vehicle2,0002,0002,0002,000Balance Sheet ( extract ) as at 31 December20X520X620X720X8Fixed AssetsRMRMRMRMMotor Vehicle, at cost10,00010,00010,00010,000Less Provision for depreciation2,0004,0006,0008,000Net book value8,0006,0004,0002,000Calculate the cost of raw materials issued from the fol lowing data using DATEPURCHASESSALESJAN15 units x RM 10.00FEB10 units x RM 10.50APRIL20 units x RM 25.00JUN8 units x RM 11.00AUG10 units x RM 25.00SEPT20 units x RM12.00NOV13 units x RM 25.00a.) LIFO orderDatePurchases approach of goods soldBalanceJan15units x RM 1015units x RM 10 = RM 150Feb10units x RM10.5010units x RM 10.50 = RM 105 count25 units RM 225April10units x RM10.5010units x RM 1010units x RM10.50 = RM10510units x RM 10 = RM100TOTAL5 units x RM10 = RM 50Jun8 units x RM118 units x RM 11 = RM 88TOTAL5 units x RM10 = RM 508 units x RM 11 = RM 8813 units RM 138August8 units x RM 112 units x RM 108 units x RM 11 = RM 882 units x RM 10 = RM 2010 units RM 108TOTAL3 units x RM 10 = RM 30Sept20 units x RM 1220 units x RM 12 = RM 240TOTAL3 units x RM 10 = RM 3020 units x RM 12 = RM 24023 units RM 270Nov13 units x RM 1213 units x RM 12 = RM 156Closing stock3 units x RM 10 = RM 307 units x RM 12 = RM 8410 units RM 114gross revenue = ( 20 units + 10 units + 13 units ) x RM 25= RM 1075Cost of goods sold= (10units x RM10.50) + (10units x RM 10 ) + (8 units x RM 11 ) + (2 units x RM 10 ) + ( 13 units x RM 12 )= RM 105 + RM 100 + RM 88 + RM 20 + RM 156= RM 469GROSS PROFIT = sales Cost of Goods Sold= RM1075 RM469= RM606b.) FIFO methodDatePurchaseCost of goods soldBalanceJan15 units x RM 1015 units x RM 10 = RM 150Feb10 units x RM 10.5010 units x RM 10.50= RM 105TOTAL25 units RM155April15 units x RM 105 units x RM 10.5015 units x RM 10 = RM 1505 units x RM 10.50= RM 52.5020 units RM 202.50TOTAL5 units x RM 10.50 = RM 52.50Jun8 units x RM 118 units x RM 11 = RM 88TOTAL5 units x RM 10.50 = RM 52.508 units x RM 11 = RM 8813 units RM 140.50August5 units x RM 10.505 units x RM 115 units x RM 10.50 = RM 52.505 units x RM 11 = RM 5510 units RM 107.50TOTAL3 units x RM 11 = RM 33Sept20 units x RM 1220 units x RM 12 = RM 240TOTAL3 units x RM 11 = RM 3320 units x RM 12 = RM 24023 units RM273Nov3 units x RM 1110 units x RM 123 units x RM 11 = RM 3310 units x RM 12 = RM 12013 units RM 153Closing stock10 units x RM 12 = RM 120Sales = ( 20 units + 10 units + 13 units ) x RM 25= RM 1075Cost of goods sold= ( 15 units x RM 10 ) + ( 5 units x RM 10.50 ) + ( 5 units x RM 10.50 ) + ( 5 units x RM 11 ) + ( 3 units x RM 11 ) + ( 10 units x RM 12 )= RM 150 + RM 52.50 + RM 52.50 + RM 55 + RM 33 + RM 120= RM 463GROSS PROFIT =Sales Cost of Goods Sold=RM1075 RM463=RM612c.) Average cost methodDatePurchasesCost of goods soldBalanceJan15 units x RM 1015 units x RM 10 = RM 150Feb10 units x RM 10.5010 units x RM 10.50 = RM 105WAVCO15 units x RM 10 = RM 15010 units x RM 10.50 = RM 10525 units RM 225= RM 10.20 / unitsApril20 units x RM 10.2020 units x RM 10.20 = RM 204TOTAL5 units x RM 10.20 = RM 51Jun8 x RM 118 units x RM 11 = RM 88WAVCO5 units x RM 10.20 = RM 518 units x RM 11 = RM 8813 units RM 139= RM 10.69 / unitsAugust10 units x RM 10.6910 units x RM 10.69 = RM 106.90TOTAL3 units x RM 10.69 = RM 32.07Sept20 units x RM 1220 units x RM 12 = RM 240WAVCO3 uni ts x RM 10.69 = RM 32.0720 units x RM 12 = RM 24023 units RM 272.07= RM 11.83 / unitsNov13 units x RM 11.8313 units x RM 11.83 = RM 153.79Closing stock10 units x RM 11.83 = RM 118.30Sales = ( 20 units + 10 units + 13 units ) x RM 25= RM 1075Cost of Goods Sold= ( 20 units x RM 10.20 ) + ( 10 units x RM 10.69 ) + (13 units x RM 11.83 )= RM 204 + RM 106.90 + RM 153.79= RM 464.69GROSS PROFIT =Sales Cost of Goods Sold= RM1075 RM 464.69= RM 610.315a.) Explain clearly the difference between capital white plague and revenue outgo. large(p) consumption is acquired to be used in business operation to generate revenue for a period of more than one year. Capital expenditure is the money that spends on buying asset. For instance, office equipment and motor vehicle are the examples of the capital expenditure. Capital expenditure also can be considered as the useful economic life of the asset. Therefore, the expenditure aimred is allocated over the period it is used to match the revenue earn ed.On the other hand, revenue expenditure are incur in the current year in the business operation. The revenue expenditure is the expenditure on the wages, premises, and utility bills. Therefore, the revenue expenditure need to written off to the profit and loss account in the year in order to measure the profit or loss. This is an accounting concept termed matching and accruals concept. Revenue expenditure also is the money that spends to obtain the use of the asset and maintain the dairy operation of the business.b.) Classify the following items as capital or revenue expenditure.i .) Cost of new machineryCapital expenditureii . ) Petrol and oil for the motor vehicleRevenue expenditureiii . ) Wages of office lagRevenue expenditureiv . ) Extension of factoryCapital expenditurev . ) Repainting officeRevenue expenditurevi . ) Cost of road tax and insurance for new vanCapital expenditurevii . ) Cost of road tax and insurance for existing vanRevenue expenditure viii . ) Repair and mai ntenance of existing vanRevenue expenditureix . ) Legal fees paid in connection with factory extensionRevenue expenditurex . ) Cost of painting firms name on new vanCapital expenditureBibliographyInternet sourcesWikipedia 2009, Entity concept, 5 Dec, viewed by 3 July 2010BusinessDictionary.com 2010, business entity concept, viewed by 18 June 2010Tutor2u, accounting concept and conventions, viewed by 18 June 2010Anil Kumar Gupta 2007, Depreciation, Causes of Depreciation, Need for Provision of Depreciation , 2 June ,viewed by 18 June 2010