TOPIC 2 : BASIC ACCOUNTING CONCEPTS

SUBTOPIC : ACCOUNTING CONCEPTS

PART 1

In the following case, identify the accounting concept involved. State either the concept
complied or not complied with. Explain your answer.

Mr. Jozan is a batik entrepreneur in Mersing, Johor. His business grew with the
increasing number of tourists to the Mersing area. In January 2020 he learned that the number
of tourists visiting the Mersing area would double from the previous year. To avoid difficulties
at that time he asked the company's accountant to record possible gains to be earned during
the year with the aim of facilitating the purchase of stocks.

The company's clerk has recorded a profit percentage in the company's account and
has decided to book material twice as much as the previous year. The account clerk suggests
the owner to change the old stock calculation method to a new method of FIFO which is
thought to be better for large stock handling.

Although the number of tourists increased in January, the demand for batik was
unsatisfactory resulting in most of the stocks being damaged and unsold. But, a small portion
of the stock still in good condition has been distributed to Mr. Jozan's family members. The
item is not recorded in the company account because the owner considers that the value is
small.

Total business expenses also increased due to stock handling costs in warehouses.
Mr. Jozan asks account clerks to distribute expenses incurred in January to the next two
months of February and March.

Due to the various financial problems that arose during the month, the account clerk
decided not to prepare the financial statements during the month to avoid the matter being
reported in the financial statements. The owner of the company agrees and asks the clerk to
remove all proof of purchase and expenses incurred.