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Graded Discussion Board No:1 for MGT101 Financial Accounting (Due date: Monday, June 01, 2015)SEMESTER spring 2015

Topic to be tested:

  • Forms of business organizations and basis of accounting

 

Learning Objectives:

  • To develop an understanding about forms of business organizations and basis of accounting used in commercial organizations.

 

Discussion Scenario:

Mr. Aslam is an owner of wholesale business for spare parts. He has been running this small scale business since last two years. Recently, Mr. Aslam divided his business into two different shops i.e. Shop-A & Shop-B which are located in two different areas of the same city. Shop-A is handled by Mr. Aslam himself and he has given responsibility to his son Mr. Ali for managing Shop-B against fixed monthly salary of Rs. 30,000 per month.

 

Shop-A:

During the year, the accounts of Shop-A reflects total sales of Rs. 600,000 out of which Rs. 300,000 has been received just at the time of sales, Rs. 120,000 received after three months following the sales, while remaining amount of Rs. 180,000 not received till the end of accounting period. Mr. Aslam reported the revenue amounting to Rs. 420,000 for a current accounting period instead of reporting Rs. 600,000.

 

Shop-B:

On the other hand, the accounts of Shop-B reflects total sales of Rs. 450,000 out of which Rs. 400,000 related to credit sales and that amount is not received till the end of accounting period. Mr. Ali reported revenue for Shop-B amounting to Rs. 450,000 instead of reporting Rs. 50,000. This policy of reporting revenue is not in line with policy of Shop-A.

 

Concern of Mr. Aslam:

Revenue of whole business is not shown as per the expectation of Mr. Aslam. He reviewed the accounts of Shop-B and found different recording policy than Shop-A. He was confused about two different basis of record keeping so he wanted to select one basis of accounting for his business. His son is a business graduate and suggested his father to adopt recording policy in Shop-A similar to Shop-B. His father agreed and switched to new basis of record keeping in Shop-A.

 

Required:

By considering the above mentioned scenario, you are asked to answer the following questions:

1.     Which form of commercial organization is running by Mr. Aslam with his son?

2.     Identify the basis of accounting (Cash or Accrual) used by Mr. Aslam and his son for “Shop- A” & “Shop-B”.

3.     What is the main and logical reason considered by Mr. Ali to suggest similar record keeping in both shops?

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Replies to This Discussion

bohut simple answer hai:

1. sole proprietorship business as he is giving salary to his son on fixed basis and not sharing profit in commercial business. 

2. Accrual Accounting System as accrual system says as and when recorded and in given scenario shop A is receiving cash and cash on credit after one year. 

3. Business is on cash and credit, the products are same, the location wise, the business are divided in the same country into Shop A and Shop B. All things are same so he decided that record keeping both should same in both shops

yeh bhi better answer hai

but baat samjh aani chahye....apna ilfazo me aap nay khud he likhna hai copy paste nahi karna...

thanks

dakhte hai kon kon ab puray 5 number laita hai

Assalam o Alaikum Every one ..i m confused ,, is this necessary to discuss Scenario? i mean there was no scenario in in lms? aur kiya her student different scenario create keray ga ya yahi scenario copy keray ga ... but explanations will be different right.. 

Thnk You ...

Answer # 1: Mr. Aslam is running Sole Proprietor business in which one man has complete authority for that business. All the rules are governed by one person and all profits and losses are enjoyed by himself only. No rules and acts are applied in this type. This method as old as human civilization.

Answer # 2:  In Accounting we used two terms known as Cash and Accrual also called Cash basis and Accrual basis.   In Cash, payment is considered only when it is originally received. Revenue and expenses are reported only when cash is received and paid.While,,In Accrual system, revenues and Payable are reported when they are earned and incurred.receivables are reported as assets when they are earned.So, Mr. Aslam is running cash based while his son is using Accrual system.

Answer # 3: As both shops are of same business so used the same method and Mr. Ali suggests accrual system as he is a business graduate and know about the matching principle.

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