You are facing serious pressure from the Managing Director in preparing for first financial statements after you have been promoted to position of Chief Accountant in Bright Limited. The pressure you faced were due to these suggestions made by Managing Director. You resisted some of the suggestions which were contrary to the accounting concepts.

• The Managing Director wishes the companys good industrial relationship to be reflected in the financial statements.

• The long-term future success of the company is extremely uncertain.

• At the year-end, electricity is consumed but not paid for.

• A debtor who owes large amount of money to the company is rumoured to be going

  into liquidation.

• The company has had a poor trading year, and the owners believe that a more

  balanced result could be obtained and presented for the company if reducing balance

  depreciation was adopted instead of the present straight-line depreciation method.

• All the fixed assets of the company would now cost a great deal more than they were

  originally purchased.

  Required:

1. (a) Explain the main underlying accounting concept each of the Managing Direction suggestion. (5 marks)

2. (b) Use the concept outlined above to explain whether you agree or disagree with each suggestion