Mr. Quadri started an online business, ‘Beauty Care’, on 10 May 2019.

He gives you the following

information as at 31 March 2020.

Cash and bank 50,000

Accounts receivables 27,000
Capital on 10 May 2019 200,000
Payables for supplies 15,000
Inventory 30,000
Supplies 12,000
Supplies expense 17,000
Cost of goods sold 160,000
Sales revenue 420,000
Sales return and allowance 11,000
Sales discount 15,000
Equipment 120,000
Furniture 25,000
Bank loan to be payable in 2025 30,000
Selling and distribution expenses 130,000
Administration expenses 70,000

Tax is charged at 25% on operating profit.

a) Prepare a trial balance at 31 March 2020.

b) Prepare an income statement for the year ended 31 March 2020
c) Prepare an owner’s equity statement for the year ended 31 March 2020
d) Prepare a balance sheet as at 31 March 2020. You will follow classified balance sheet format, for
example, show assets and liabilities under the category of current and non-current heading.

Romel has been doing business as car rental for last 5 years. At present he has two cars that he bought
in 2017 at Tk 12,00,000 each. When he bought the cars, he was informed that they would have the
mileage of 200,000 km each after which Romel would need to replace the engines. However, Romel
does not want to use those cars for more than 4 years and he would expect to get Tk 400,000 from
every car by selling them after 4 years.

He also bought a new car on 1 July 2019 for Tk 16,00,000. However, he got a discount of Tk. 30,000 since
he paid total amount by cash. He also paid Tk. 100,000 for registration cost, Tk. 60,000 for installing
different interior equipment and also paid Tk. 60,000 for 2 years insurance. The car has also a mileage of
200,000 km. However, Romel thinks it would be logical to use this new car for next five years after which
he could sell it for Tk. 500,000 in the secondhand car market.

Determine the total cost of the third car that Romel should record in his accounts on 1 July 2019. What
accounting principle Romel should follow when he records the cost of that car. Explain the importance
of adopting this principle under GAAP.
Depreciation is defined as ‘the allocation to expense of the cost of non-current asset’. Explain the
statement with the help of appropriate accounting principles.

Romel being a small-scale businessman does not know much about depreciation. He is very reluctant to
take this expense into account as he thinks that it would artificially understate the profit, for he is not
paying any cash for charging this expense. Is Romel right? Why or why not? Give reasons with example.