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AcT 310 PART A PDF
AcT 310 PART A PDF
1612631030
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3.Mention the name of an item which we consider under retail inventory cost
method but not under the conventional retail inventory method.
Ans: Net markdowns, purchase discounts are not included under the conventional
retail method. This results in a lower ending inventory amount.
4.Give an example of a situation where we can use gross profit method for the
valuation of inventory.
Ans: When there is a fire, flood or theft and it is not possible to calculate the
inventory by physical count due to it being damaged.
5.What is the key difference between group method and composite method?
Ans: There is no gain or loss for composite method depreciation on the sale of
assets as the difference is plugged to the depreciation amount when sold.
6.What is the main difference between impairment process of limited life
intangible assets and indefinite life intangible assets?
Ans: Limited life intangibles such as patents, trademarks are amortized on a
straight-line basis while indefinite life intangibles such as goodwill are tested
periodically for impairment.
7.How to record the cost of insurance in transit for an equipment that you are
importing from U.S.A.
Ans: The insurance cost would be capitalized to the asset because it cost the
acquisition of that asset.
10. If we overstate our ending inventory, what will be the impact on our income
statement and balance sheet?
ANS: The cost of goods sold would be lower, and therefore, net income would be
higher. This would result in higher retained earnings in the balance sheet as well.
Short Questions
1) Write a short note on Commercial Substance
ANS: Commercial substance means that the transaction will directly impact the
business's cash flows going forward. A business exchange is said to have commercial
substance when it is normal that the future incomes of a company will change because of
the exchange. An adjustment in income is viewed as when there is a critical change in
any of the accompanying (excluding charge contemplation) For instance, on commercial
substance Sale of resources for the proprietor of sole ownership, who promptly rents it
back to the business. There is little differentiation between an ownership and its
proprietor, so all things considered, no genuine difference in possession happened.
2) Write short notes on perpetual and periodic inventory system. Which system is
better? Explain briefly.
Ans: A periodic system is one that includes the ordinary or semi-customary checking of
stock close by to decide stock worth and to find any misfortunes from robbery, breakage,
and out of date quality. A perpetual inventory system, then again, refreshes the stock
include continuously – after each deal, exchange, move or merchandise got Perpetual
inventory system changes stock for each buy and deal, while periodic inventory system
adjusts stock at end of month. From a cost standpoint, perpetual inventory system is
much more expensive to deal with because of the technology and personal to update
inventory every second constantly. In these two inventory systems, the perpetual
inventory system works faster and also uses automated software to record the inventories
faster. The company can see their last updated inventory balance whenever they want,
which is not possible in the periodic inventory system. So, in both of them, the perpetual
inventory system is better and faster.
5) Write short notes on different types of dividends and explain their key differences
and their effects on financial statements
Ans: A dividend is a portion of advantages and held salary that an association pays out to its
financial specialists. Exactly when an association creates an advantage and totals held pay, those
benefit can be either reinvested in the business or paid out to financial specialists as a benefit.
The yearly profit per share isolated by the offer cost is the profit yield. There are different sorts
of profits an organization can pay to its investors
Cash dividend- shareholder receives cash from company - this decreases assets and equity in
balance sheet.
Stock dividend - shareholder, receives stock as a dividend - this has no change in balance sheet
as retained earnings decreases, while common stock increases.
Property dividend - this decrease both assets and equity on balance sheet.
Other dividend – other, less common, types of financial assets can be paid out as dividends, such
as options, warrants, shares in a new spin-out company, etc.
Ans: A bargain purchase choice is a condition in a rent understanding that permits the
tenant to buy the rented resource toward the finish of the lease time frame at a cost
generously underneath its honest assessment. A bargain purchase choice permits the
rent to buy the rented resource toward the finish of the lease. They may agree to this if
the market value of the asset at the end of lease is significantly lower than when they
signed the lease. The company would not have the cash right now to purchase the entire
asset, but later on they think they will have the money and therefore, would exercise
this bargain purchase option. A bargain purchase choice is a condition in a lease
understanding that permits the tenant to buy the rented resource toward the finish of the
rent time frame at a cost significantly underneath its honest evaluation.