Emma is the accounting manager for Miles Company (Miles), which engages in the merchandising business of jewelry products in Hong Kong. While she prepares Miles annual financial reports as of December 31, 2021, she makes the following assumptions or performs the activities in the list that follows.

Required:

Discuss how Emma applies the generally accepted accounting principles based on International Financial Reporting Standards (IFRS) and identify whether the transactions or activities are properly recorded.

1. (a) Johnny is the owner of Miles Company. Recently, he paid the interest of HK$15,000 on a personal loan of HK$300,000. The interest expense was included in the statement of comprehensive income of Miles Company.

   (8 marks)

2. (b) Emma prepares a statement of comprehensive income that shows the revenue earned and the expenses incurred during the accounting period. (4 marks)

3. (c) Emma records a sale and the relevant cost of goods sold in the ledger when the goods are sold on 30 December 2021. (8 marks)

4. (d) Starting from July 2021, Emma changed the inventory costing method from the first-in- first-out method to the weighted average cost method. (8 marks)

5. (e) Emma has made an adjusting entry for the wages expense incurred but not yet recorded in

December 2021. (5 marks)