Question 2: (Total 10 marks)

1. Describe the cost principle to purchase inventory asset by UAE federal government.

(2 marks)

2. Abu Dhabi Municipality purchased inventory of finished goods from UAE at a cash price of $1,500,000. Related expenditure consists sales tax $45,000, import duties $150,000 and, Cost Insurance and freight (CIF) $75,000 with trade discounts $30,000. The purchase was financed by borrowing $1,500,000 from ADIB bank at 6% for 3 years.

Required:

1. Compute the purchase cost of the inventory. (2 marks)
2. Prepare journal entry to record the purchase price. (1 mark)

3. Explain the disclosure principle as applied by UAE federal government. (2 marks)

4. Suppose Dubai federal entity has decided to change its accounting policy for inventory from Weighted Average Cost method to First in-First out (FIFO) method. Explain to the accountant what to do after the change has taken place in relation to the application of the accounting disclosure principle. (3 marks)