Subject: Basic Accounting

(10 marks) Accounting concepts Question 1 Explain the accounting concepts applied in the following scenarios. Item Scenarios (a) Sammi Sdn Bhd purchases a building for RM500,000. The company initially reported it in its accounting records at RM500,000. By the end of the next year, the fair value of the building has increased to RM600,000, but Sammi Sdn Bhd continues to report the building at RM500,000. (b) Mickey's Dry Clean cleans clothes, but until the first week of May 2021, customers did not claim and pay for their clothes which were ready to be collected in April. Mickey's Dry Clean should record revenue in April when the service was performed (satisfied with the performance obligation) rather than when the cash was received in May. On April 30, in his financial statement, Mickey's Dry Clean would report a receivable on its financial position and income statement. (c) Mickey's Dry Clean reported the salary expense incurred in carrying out the cleaning service on 30 April in the same period in which it recognizes the revenue from the service. (d) Sammi Sdn Bhd bought clock, staple machine, punch machine, calculators and etc. for business use, but since the value of these assets is relatively low, these items will be recorded in the expense account of a particular year at the end of the accounting period, not in assets. (e) Aisya Sdn Bhd is a retailer dealing in shoes. It used first-in-first-out method of inventory valuation in respect of shoes at Branch A and weighted average inventory valuation method in respect of similar shoes at Branch B. Aisya Sdn Bhd must has a valid reason for the different treatment of similar inventory located at different locations. If not, the auditor of the company must direct the company to use eiher one of the valuation method uniformly for the similar class of inventory