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Question 1 ✅
Three qualities of good financial accounting information are accuracy, relevance, and reliability.
(a) Two interests of employees in accounting information are:
(i) Salary and benefits: Employees are interested in knowing their compensation and any additional benefits they receive from their employer. This information helps them evaluate their financial position and make informed decisions regarding their employment.
(ii) Job security: Employees want to have a sense of security in their jobs. They are interested in information that indicates the financial health and stability of the company they work for. This helps them assess the likelihood of retaining their jobs and making future career plans.
(b) Two interests of the public in accounting information are:
(i) Transparency and accountability: The public is interested in knowing how companies operate and how they use their resources. Accounting information provides transparency and helps ensure accountability in the financial reporting of companies, allowing the public to evaluate their activities and financial performance.
(ii) Consumer confidence: The public relies on accounting information to make informed decisions as consumers. Accurate and reliable financial accounting information enhances consumer confidence in the products or services offered by the company, as it indicates the company's financial stability and ability to meet its obligations.
(c) Two interests of owners in accounting information are:
(i) Profitability: Owners are concerned with the financial performance of their businesses. They are interested in information that allows them to assess the profitability of their investments and make informed decisions to maximize their returns.
(ii) Financial position and solvency: Owners want to ensure the stability and long-term viability of their businesses. Accounting information helps owners evaluate the financial position of their companies and assess their ability to meet their short-term and long-term financial obligations.
Question 3 ✅
In computing the annual depreciation charge of an asset, three factors that are considered are:
1. Cost of the Asset: The initial acquisition cost of the asset is a crucial factor in determining the annual depreciation charge. This includes any additional costs incurred to bring the asset to its usable condition, such as installation or transportation costs.
2. Useful Life of the Asset: The estimated useful life of the asset is another factor. It refers to the period over which the asset is expected to generate economic benefits for the company. The useful life can be determined based on industry standards, technical specifications, or the company's past experience with similar assets.
3. Residual Value: The estimated residual value, also known as salvage value, is the expected value of the asset at the end of its useful life. It represents the amount the company expects to receive when disposing of the asset. The higher the residual value, the lower the depreciation charge each year.
Now, let's differentiate between depreciation and amortization:
Depreciation is the systematic allocation of the cost of tangible assets over their useful life. It applies to assets such as buildings, vehicles, machinery, and furniture. Depreciation reflects the wear and tear, obsolescence, or other factors that cause a reduction in the value of these assets over time.
Amortization, on the other hand, is the systematic allocation of the cost of intangible assets over their useful life. Intangible assets include patents, copyrights, trademarks, and goodwill. Amortization is used to account for the gradual consumption or expiration of the economic benefits associated with these assets.
Assets that would be depreciated include buildings, vehicles, and machinery. These assets have a physical form and are subject to wear and tear or obsolescence.
Assets that would be amortized include patents and copyrights. These assets have no physical form but represent exclusive rights or intellectual property that provides economic benefits over a specific period.
Question 4 ✅
(a) Four items that are on the credit side of the sales ledger control account are:
1. Sales revenue: This represents the total amount of money received from customers for goods or services sold.
2. Cash sales: This includes any transactions where customers made direct payment in cash for their purchases.
3. Credit sales: This accounts for sales made on credit, where customers are given a certain period of time to make payment.
4. Discounts received: This refers to any discounts granted by suppliers or vendors for early payment or bulk purchases.
(b) The four purposes of control account are:
1. Monitoring sales or purchases: Control accounts help in tracking and summarizing the total sales or purchases made over a specific period.
2. Identifying discrepancies: By comparing the control account balance with individual customer or supplier accounts, discrepancies can be identified and investigated.
3. Ensuring accuracy: Control accounts provide a means to ensure accuracy in recording sales and purchases, by acting as a cross-reference for individual accounts.
4. Facilitating financial analysis: Control accounts provide a consolidated view of sales or purchases, which can be useful for financial analysis, reporting, and decision-making.
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