Case Study 5 Jasim is an auditor in Jalal & Associates Auditing Company. He has rich experience in auditing and assurance, and has used his expertise, in teaching students at various colleges and universities in the region. During his teaching, he often emphasizes on the importance of adhering to the fundamental accounting concepts and conventions. On a particular day, Jasim has given certain situations and asked the students to identify the underlying concepts and/or convention which are applied to the situations. 1. In a manufacturing company, the accountant has used the market price to value the closing stock instead of the purchase price. This adjustment was made to show a better financial position, as they found that the market value is significantly higher than the purchase price. | Page 8 2. In a trading company, the accountant has changed the inventory valuation method from LIFO to FIFO during a particular year. This change was reversed in the immediate year. Currently, in place of LIFO and FIFO, the company is using Weighted Average Method. 3. ABC Manufacturing Company has recently signed an agreement with a leading newspaper company for advertising their product for the next three years. A total amount of RO21,000 is paid as an advance. The accountant considered it as an operational expense and charged to the income statement at the end of the financial year. 4. While doing adjustment entries the accountant has provided a provision for a contingent loss arising from the sale an investment and recorded the expected gain arising from the sale of another investment 5. The financial statements for the previous year was prepared separately for each subsidiary company. During the current year, the financial statements are prepared for the company including the subsidiaries. There was no mention about the way fixed assets are valued for the different subsidiary units. 6. In an export-oriented company, a purchase order is received, to supply 50,000 units of a material for the next three years, to an overseas company. The company received the full amount of 150,000 units as an advance and considered the whole amount as revenue for the current year. Jasim mentioned that all the above scenarios are instances where fundamental accounting concepts or conventions are violated. Based on the case, answer the following questions. (Maximum word count for Case Study is 400 Words) (4+6 = 10 Marks) Briefly explain the various accounting concepts and conventions relevant in this case. As an accountant, Identify the correct treatment for the transactions listed in the case study. 1. 2