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“ABC Company has expanded its operations and purchased some furniture for its recently rented show room situated in north of the city, which is expected to have useful life of five years. During the same year the company purchased furniture and other home accessories from renowned designers and sold it to customers from its show room.

You are required to identify the account heads in which the above purchases of furniture will be recorded and why?  You need to give valid reasons to support your answer.”

 

Need the solution for above.

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MGT 101 GDB solution 2012

 

Solution:

 

 

 ABC Company has expanded its operations and purchased some furniture for its recently rented show room situated in north of the city, which is expected to have useful life of five years.

 This furniture is not meant for resale; therefore, it should be capitalized and depreciated under "Property, Plant, and Equipment".

 

 During the same year the company purchased furniture and other home accessories from renowned designers and sold it to customers from its show room.

 This furniture is meant for resale; therefore, it should be listed under "Inventory"

 

 

 

Moreover we can say that:

 1. The furniture purchased for the rented show room will be recorded as “Fixed Assets” because it’s not for sale.

 2. The furniture and other home accessories will be recorded as “Goods purchased” because these items are purchased for selling. Further we can say that these are "current assets" related to “Inventory items”.

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