A.

MAJOR ACCOUNTING ASSUMPTIONS The business will use a fiscal year in preparing its financial
statement for the first year of operation. The period covered by financial statements will begin on July 1,
2020, and end on December 31, 2020. For the succeeding years, the business will shift to the calendar
year. 1. Annual Operating Days The business operation will start on March 1, 2020, and will operate for
two hundred ninety-two (292) days every year. The business is open from Mondays to Saturdays from
9:00 AM to 5:00 PM. 2. Production Capacity The enterprise will produce 300 dumplings per day. The
production for the first year of operations is 87,600 units. There will be an increase of 5% to the
production due to population growth and the desire of the population to purchase the dumplings. 3.
Spoilage The assumed spoilage of the dumplings id 5%. 57 4. Cash This will be composed of cash on
hand, cash in bank, and petty cash fund. a. Cash on Hand- this is composed of undeposited cash
collections and other cash items that are waiting to be deposited. b. Cash in Bank- the entity shall
deposit all its receipts to a savings account at the Bank of the Philippine Islands. c. Petty Cash Fund- ten
thousand pesos (Php 10,000) will be maintained to pay for current purposes. 5. Inventories This is
composed of raw materials and the method that will be used is the FIFO method. There is an increase in
the purchase price by 2.50% which is the average inflation rate of 2020. The cost of the raw materials
that were purchased is expected to increase by 5% every year. 6. Office Supplies The purchase price will
increase by 2.50% which is the inflation rate of 2020. The entity will maintain 10% at the end of the year
except for the supplies for operation or production. 7. Machinery and Equipment The equipments
purchased were based on cash transactions and its purchase price was the actual price in the market. 8.
Trade and Other Payables 58 9. Salaries and Wages The minimum wage for the helper is Php 350 and
Php 400 for the cook. The direct labor of Php 265, 385.36 will remain constant for the first year of
operation and will increase by 10% in the sixth year. 10. Accounts Payable Purchases will be paid every
month equally for the year. 11. Income Tax Payable The income tax due for the year less the income tax
paid for the first three (3) quarters of the same year. 12. Vat Payable Tax The entity will not be
registered under VAT, thus it will use 3% percentage tax. 13. Capital The initial investment for each
partner is Php 70,380.34. Profits and losses are shared equally. 14. Sales Sales will be computed from
the 95% of the production. To avoid uncollectible, all sale transactions will be made in cash. 15. Cost of
Goods Sold The production will be based on the normal capacity of the entity which is 300 units per day.
There is an increase of 5% in the raw materials each year which is based on the increase in production.
59 16. Utilities Expense This includes electricity, water, and LPG that will be used in the production.
Electricity and water will be paid monthly while the LPG will be refilled quarterly. 17. Transportation
Expense This is allotted for the transportation going to the supplies to buy the materials needed for the
production and to the selling site. 18. Administrative and Selling Expense This includes office supplies,
cleaning supplies, indirect production tools and supplies, tax and licenses, feasibility cost, and
advertising expenses. There will be a 5% increase in these expenses each year. 19. Depreciation Expense
This will be computed using the straight-line method. Php 331 will be the daily depreciation expense. 20.
Rent Expense Rent expense is paid monthly. The monthly rent for the production is Php 7,000 while Php
3,000 on the selling site.