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QUESTION SOALAN 1 Hazran started a computer business on 1 June 2016 by the name Smart Computer. This business operates at Shah Alam, Selangor. Besides
QUESTION SOALAN 1 Hazran started a computer business on 1 June 2016 by the name Smart Computer. This business operates at Shah Alam, Selangor. Besides the main activities of selling and buying computers, hardware and software, Hazran also provides computer training and services. This business operates as a sole proprietorship with a cash contribution of RM200,000. He employed fifteen employees including Encik Daniel who was appointed as an accountant. Encik Daniel with a professional certification is responsible in handling all accounting records At the beginning of the operation, Hazran bought a few computers using funds from the business and one of the computers was taken home as a present for his son. All the computers were recorded and depreciated using the declining method. However, commencing from 2018, the depreciation method will be changed to straight line basis. Hazran expects to sell about 30% of computers for cash. From the credit sales, 70% are expected to be collected in full in the month of the sale and the remainder in the following month. When Encik Daniel is in doubt on the amount of revenue or expense, he takes a view that it is better for him to understate rather than overstate the net income. Over the last three vears, some computer retail businesses have declined whilst others have discontinued their operations. However, Hazran's business is still in a strong financial position, with a 34% increase in gross profits and he has no plan to cease operations. However, Encik Daniel has prepared the financial statements of the business on the assumption that the business might close and liguidate at any time. In addition, Smart Computer recognises expenses when they are incurred during the period rather than when paid. Revenues are recognised when they ae earned, not when the cash is received from customers Required: Discuss the qualitative characteristics, accounting principles, assumptions and constraints apply in the above case (16) (Total : 16 marks)
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