Jack and Jill own a bucket which cost them £5. The bucket has not yet been used. They also have £3 in cash. (Ignore any other assets which they might have.) They have decided to go into business buying and selling water. They estimate that the bucket will last for 10,000 journeys to the well to fetch water. Jack and Jill found that they had to pay £2 to the water seller at the well to fill their bucket.

Returning from the well, Jack collided with a passer-by and broke his glasses. He promised to pay for the damage. The passer-by said that he thought the glasses could be repaired for between £4 and £6. When Jack and Jill arrived at the bottom of the hill they found someone who paid them £10 for half the water in the bucket. Other potential cus¬ tomers are approaching, and Jack and Jill have heard that the water seller may now be charging £3 for a bucket full of water. They have also found out that the price of buckets has doubled since they started business.

Required:

(a) List Jack and Jill’s assets and liabilities at this time and work out how much better (or worse) off they have become since they started business. In doing this, list whichever accounting conventions you have used and explain why you consider them to be appropriate.

(b) Work out, from the figures you have produced, a statement of assets and liabilities at the end of the period for which Jack and Jill have been trading. Also produce a state¬ ment showing how the profit (or loss) was made during the period.

(c) Discuss whether or not the statements give a realistic picture of what has happened and the position of Jack and Jill at the end of the period.