You have been appointed as an accountant of M.K. Industries a company formed by Mr Mutiso and Mr K.Kyalo to manufacture cooking fats for sale. While reviewing the accounting records of the company, you discovered that the following transactions and events were recorded during the year ending 30 September 1993. (i) Land was reported at its estimated selling price, which is substantially higher than its cost. The increase in value was included in the income statement. (ii) The personal assets of M.Mutiso and K.Kyalo are not included in the financial statements of the business although M.Mutiso and K.Kyalo are agreeable to guaranteeing the bank overdraft of the business. Required: For each of the above items, explain which basis of accounting principle(s), concept(s) or convection(s), if any, are violated or observed. In each case, indicate the correct treatment.
You have been appointed as an accountant of M.K. Industries a company formed by Mr Mutiso and Mr K.Kyalo to manufacture cooking fats for sale. While reviewing the accounting records of the company, you discovered that the following transactions and events were recorded during the year ending 30 September 1993.
(i) Land was reported at its estimated selling price, which is substantially higher than its cost. The increase in value was included in the income statement.
(ii) The personal assets of M.Mutiso and K.Kyalo are not included in the financial statements of the business although M.Mutiso and K.Kyalo are agreeable to guaranteeing the bank overdraft of the business.
Required:
For each of the above items, explain which basis of accounting principle(s), concept(s) or convection(s), if any, are violated or observed. In each case, indicate the correct treatment.
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