Rawhide & Co. commenced trading on 1 April 1983. The manager has prepared the following accounts for the first year's operations:

A friend has commented that these accounts do not observe 'the accounting postulates and conventions', and you are asked to carry out a review. You ascertain the following additional information:
(i) 20,000 units of stock in good condition were on hand at the yearend.
(ii) Salaries of £2,500 have been misclassified and included in 'other expenses'. The manager was aware of this, but is reluctant to change the accounts since the amount is so small and does not in any case affect the net profit.
(iii) The two motor vehicles purchased on 1 April 1983 for £3,000 each were expected to have a useful life of five years with no residual value. The Managing Director was pleased to see that the quoted trade-in figure was still £2,900 for each car at the year-end.
(iv) The investments had originally cost £10,000. The market value of half the investments had doubled during the year, but the remaining shares were worthless because of the liquidation of the company involved.
(v) The manager feels that the company has built up £2,000 of goodwill during the year, in the form of established customers.
(vi) Rawhide & Co. consider that the research and development expenditure is to be written off in the year it is incurred, and this will be done in future. In view of the results for this first year, however, the manager has decided that this year they should be capitalized.
(vii) Discussions have been going on throughout the year with a competitor to sell the shares in Rawhide's subsidiary, Hatton & Co.
Negotiations had almost been completed at the year-end, and the £20,000 original cost has consequently been included in the bank figure to improve the position.
Required:

(a) Redraft the above accounts in accordance with the recognized accounting postulates and conventions.

(b) Identify the postulates and conventions which had not originally been observed and discuss the basis in each case.

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Trading, profit and loss A/c for the year ended 31 March 1984 Sales (80,000 units) Less: Purchases (100,000 units) 1,200,000 1,000,000 Gross Profit 200,000 Less: Salaries 5,000 Amount written off motor vehicles Other expenses 200 164,800 170,000 Net Profit 30,000