Question

You are working in a company as a Chief Accountant. While preparing the accounts of your
company, you are faced with a number of problems. These are summarized as below.
1. Production manager of the company is interested to reflect the good industrial relation in the
accounts.
2. The long-term future success of the company is doubtful due to market competition.
3. Although the sales have not yet actually taken place, some reliable customers of the company
have placed orders from which company is expected to earn large profits.
4. One of the shareholders of the company has invested his saving in some shares of another
company.
5. At the end of the accounting period, factory rent of the company is outstanding for Rs.10,
000.
6. At present, market prize of the fixed assets of the company is very high as compared to the
book value and directors are interested to show the fixed assets in accounts at their current
market price.
7. During the year, the company purchased pencils Rs. 50. These had all been issued from stock
and were still in use at the end of the year.
8. Directors are interested to adopt LIFO Method of inventory valuation instead of present FIFO
Method for the Current accounting period for showing better results.
9. A debtor who owes an amount to the company is likely to be declared insolvent.
10. Balance sheet of the last year shows that company owns shares in a quoted company and they
are quoted at substantially lower value than purchase price. The value is not likely to
increase.

You are required to
a. State which accounting concept you would follow in dealing with each of the above
problems
b. Explain briefly what each concept means.

Answer 1

Answer:

Balance sheet of the last year shows that company owns shares in a quoted company and they

are quoted at substantially lower value than purchase price. The value is not likely to

increase.