Question 1

Efficient market hypothesis (EMH) has received a lot of attention since its inception. Despite its relative simplicity, this hypothesis has also generated a lot of controversy.

1. What is meant by EMH? Explain why efficiency is important for you as a potential investor.
2. Briefly discuss the forms of market efficiency. Which market efficiency assumed to exist?

(12 marks)

Question 2

Ahmad has started business as a sole trader on 1 October, 2020. The following transactions and events of trading for his first month are as follows:

Date Transaction

1 Started the business by introducing $360,000 into the business bank account.

3 Rent is paid by cheque $8,000 for the month.

9 Ahmad paid $40,000 in cash for a van.

11 Ahmad purchased goods costing $18,000 on credit from Sarah (invoice no. SR0123).

14 Ahmad sold goods for $7,000 in cash.

16 Ahmad sold goods for $8,000 on credit to Ali (invoice no. AL.0001)

25 Ahmad paid $17,100, taking advantage of a 5% settlement discount with respect to invoice no. SR0123.

28 Ali paid $7,760, taking advantage of a 3% settlement discount with respect to invoice no. AL.0001.

Required:

1- Enter the above transactions into their appropriate cash books.

2- Post the transactions directly into their appropriate nominal ledger accounts.

3- Prepare the trial balance as at October 31, 2020.

(18 marks)