Assignment

Starting Date Monday, December 20, 2015

Closing Date Wednesday, June 25, 2015

Status Open

Question Title GDB 01

Question Description

Discussion Question:

Topic to be tested:

· Basis of accounting

· Cash in hand Vs Profit

Learning Objective:

This discussion question will enable the students to understand the concepts of accrual and cash basis of accounting cash in hand verses net profit. Moreover, they will also think out of box regarding matching principal and realization principal.

Discussion question:

Suppose a newly established company i.e. ABC Limited provides consultancy services to its clients for Rs. 25,000 in its first accounting period, out of which Rs. 10,000 received immediately. While the remaining amount of Rs. 15,000 yet to be collected till the end of accounting period. During the same accounting period, company also incurred some expenses amounting to Rs. 8,000 out of which Rs. 6,000 paid to the creditors. On the basis of above information, the company's accountant calculated a net profit of Rs. 4,000 for the period.

Another company XYZ Limited provides the consultancy services for Rs 30,000 to its clients and received the entire amount in the same accounting period. The company also incurred some expenses amounting to Rs. 15,000 and the entire amount yet to be paid at the end accounting period. On the basis of this information, the company's accountant calculated a net profit of Rs. 15,000 for the period.

Requirement:

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

1. Identify the basis of accounting used by ABC Limited and XYZ Limited.

2. Which company using better basis of accounting and why? Explain your answer with appropriate rationale.

3. Explain, are the amounts of profit calculated by both the companies correct and similar to cash in hand?

Important Instructions:

1. Your discussion must be based on logical facts.

2. Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.

3. Obnoxious or ignoble answer should be strictly avoided.

4. Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.