Question 2

The following is an extract from a letter written to you by Mr Thompson, a retailer, whose final accounts you have recently prepared.

"I have examined the accounts you have sent me and I am puzzled about the following:

During the year, I used a business cheque to buy a new washing machine for my wife to use at home. Why is this not included on the Balance Sheet?

I cannot understand why the business cash has decreased in spite of the fact that the business has made a profit. Can you explain reasons why this may have happened?

I bought a van two years ago for RM12,000, assuming it would be in use for five years and then be worth nothing. Why have you included this van on the Statement of Financial Position at a value of RM7,200 when the market value of the van, according to a second-hand vehicles guide, is only RM5,000?" Explain with an accounting concept that you have learnt.

My friend, Andy, tells that everything in the world can be measured with money, although I am not so agree with his statement. Based on what concept he illustrates?

I bought a van two years ago for $12,000, assuming it would be in use for five yeas and then be worth nothing. Why did the second-hand vehicle be worth nothing and what are possible reasons?

Required:

Comment on each of the five points above with an accounting concept that you have learnt. Assume that Mr Thompson has very little accounting knowledge.