basic accounting course:

QUESTION 4: Accounting Concepts (10 marks)

You are employed as a graduate accountant in a mid-tier accounting firm. One of the partners has asked you to review the following cases where a client has violated at least one of the assumptions, concepts or definitions you studied at university. The partner has asked for a written report in your own words (using references where appropriate), to please explain:

a)which concept or assumption has been violated, and;

b)what the correct treatment should be.

i.The manager of a firm was advised by the accountant that the loss of large sums of money was probably because several customers were close to bankruptcy. The customers concerned probably would not be able to pay their debts. The manager has argued that no allowance should be made because the losses have not yet occurred.

ii.The owner of a farming property argued that the value of a public road running past his land should be included among the farms assets. He felt this was right because the road made it quicker and easier for him to transport his products. this means that the road is an asset to the farm, he said. [5 marks]

QUESTION 5: Cash Flow Statement (17 marks)

Below are the summarised cash flow statements for two businesses. Comment in your own words using referencing where appropriate on which one has a healthier cash flow situation and justify your answer by explaining the significance of each of the three types of cash flows for each business:

	Anaconda Ltd	Calibre Ltd
Cash flow from Operating Activities	13 100	(13 900)
Cash flow from Investing Activities	(7 800)	20 100
Cash flow from Financing Activities	(6 700)	(3 800)
Net increase / (decrease) in cash held	(1 400)	2 400
Cash at the beginning of the year	7 100	3 400
Cash at the end of the year	5 700	5 800

[Approximately 400 words expected in your answer]