Question 1 (10)

You are an Assistant Accountant employed by Melody Accountants and are currently working on preparing the financial statements of Bryne Ltd, a company that services and repairs mobile phones for the year ended 30 June 2021.

Scenario

Over the last two years Bryne Ltd has incurred significant trading losses and has become increasingly reliant on short-term borrowing which is not supported by an increase in business. The management of Bryne Ltd have concluded that the business is not a going concern anymore.

1. Explain what this assumption mean that financial statements are prepared based on a going concern. (5)
2. Describe how the assets and liabilities of Bryne Ltd are to be valued in the statement of financial position of the year as at 30 June 2021. (5)

Question 2 (10)

Mashabile Ltd operates a group of cafeteria outlets. The financial statements are being prepared for the year ending 31 March 2014 and the following issues have been raised.

1. One customer has filed for legal action against the company having been injured severely on the

wet floor of the shop. The cleaner had followed procedure and placed a sign warning of the wet floor. Mashabile Ltd has been advised that it is possible that the customer will be awarded compensation of approximately $25,000.

2. Kitchen equipment was purchased on 1 April 2000 for $40,000 and was depreciated on a straight-

line basis over a period of 8 years. On 1 April 2003 it was determined that the equipment had a total useful life of 7 years.

You are required to consider the issues raised above and clearly elaborate the treatment of each within the financial statements for the period ending 31 March 2004, using figures to illustrate your answers where relevant. (10)