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QUESTION FOUR A. Indicate which of the following items could appear as an asset on the statement of financial position of a business. Explain your
QUESTION FOUR A. Indicate which of the following items could appear as an asset on the statement of financial position of a business. Explain your reasoning in each case. (1)1,000 owed to the business by a credit customer who is unable to pay. (2) A patent, bought from an inventor, which gives the business the right to produce a new product. Production of the new product is expected to increase profits over the period during which the patent is held. (3) A recently hired marketing director who is confidently expected to increase profits by more than 30 per cent during the next three years. (4) A recently purchased machine that will save the business 10,000 each year. It is already being used by the business but it has been acquired on credit and is not yet paid for. (8Marks) B. Suppose an item of information is capable of being provided. It is relevant to a particular decision and can be faithfully represented. It is also comparable, verifiable, timely and could be understood by the decision maker. Explain reasons why, in practice, you might decide not to produce the information (4 Marks) C. Accounting conventions influence the statement of financial position. Explain the meaning of the understated conversions stating clearly their relevance in the preparation of the statement of financial position. (8Marks) L. Dual aspect convention Going concern convention Business entity convention Historic cost convention 11. III. IV
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