1 Unit 3: Primary Assumptions Made in Preparing Financial Statements (28 marks) Sally Adams opened a ceramic studio in a leased retail space, paying the first months rent of N$300 and a N$2,000 pre-paid deposit with a cheque through her personal account. She took personal moulds, supplies and paint, worth about N$7,500, from her home to the studio. She also bought in a new firing kiln to start the business. The new kiln had a list price of N$5,000, but Sally was able to trade in her old kiln, worth N$500 at the time of trade, for the new kiln. Therefore, she paid only N$4,500, on which she wrote a cheque on her personal account. Adams first customers paid a total of N$1,800 to attend classes for the next two months. Adams opened a cheque account in the companys name with the N$1,800. She has conducted classes for one month and has sold N$3,000 worth of unfinished ceramic pieces called greenware. All greenware sales were made in cash. Adams incurred N$1,000 of personal cost in making the greenware. At the end of the first month, Adams prepared the following statements of financial position and income: Adams Ceramic Studio Statement of Financial Position As at July 31, 2016 Cash N$1,800 N$ Kiln 5,000 Equity 6,800 Total 6,800 Total 6,800 Adams Ceramic Studio Statement of Income For the Month Ended July 31, 2016 N$ N$ Sales 4,800 Less: Rent 300 Supplies 600 900 Net income 3,900 Sally needs to earn at least N$3,000 each month for this business to be worth her time. Given the balance in the statement of income, she is pleased with the results. Required i. Identify the assumptions that Sally has violated and explain how each event should have been handled. (3 marks) ii. Using the spreadsheet, prepare a corrected statement of financial position and statement of income. (25 marks)