7pSession 2 - Exercises

1.22 What is the impact of the qualitative characteristic of 'materiality' on the

preparation of the financial statements?

The qualitative characteristic of 'materiality' is another important assumption in

accounting. According to the accounting and legal professions, material information
is that which affects the decisions made by users of the financial reports in which the
information is disclosed. Determining a material item should include a quantitative
and qualitative evaluation of that item. The factors that need to be considered are
type of entity, size of entity and the industry that the entity is operating in.
Significant professional judgment is necessary. The impact of this characteristic on
the preparation of financial statements is that information is only disclosed if it
affects the decisions made by users of financial reports. Therefore, in financial
reports amounts are rounded up to the nearest thousand or ten thousand. Individual
assets are not listed in the Balance Sheet - the notes to the financial reports would
provide a description of assets under each class of asset on the Balance Sheet.

1.28 What is an IFRS and how does it impact on standard setting in Malaysia?
Malaysia adopted Malaysian equivalents to International Financial Reporting
Standards, (IFRS), from 2005. The adoption of IFRS helps ensure compliance
with internationally agreed principles, standards and codes of best practice.
The adoption of IFRS also reduces the amount of standard setting in Malaysia by the
Malaysian Accounting Standards Board, (MASB), which allows the MASB to focus
on providing expert advice on some of the International Accounting Standards
Board future projects and interpreting issues arising out of the adoption of
IFRS.

1
4.26 Accounting worksheet

Enter the following transactions for the month of March 2022 in a worksheet
and calculate the profit or loss for the period. Explain how the worksheet
assists in the calculation of profit or loss.

2022

March 3 Injected capital to commence business $200 000.

4 Purchased office stationery $1600.

7 Received cash fees $2400.

8 Took out a loan from Smith Bank $18 000.

8 Paid rent $1 800.

10 Purchased office suite of furniture on credit $8 000.

12 Invoiced a customer for services $2 200.

17 Paid wages to executive assistant $980.

27 Invoiced a customer for services $2 200.

Solution

{ Asset }{ Liabilities }{ Equity }

Date Cash Accounts Office Account Loan Capital Profit or

March Receivable Furniture s loss
2022 Payable
3 +200000 +200000
4 -1600 -1600
7 +2400 +2400
8 +18000 +18000
8 -1800 -1800
10 +8000 +8000
12 +2200 +2200
17 -980 -980
27 +2200 +2200
Totals 216,020 4400 8000 8000 18000 200000 2420(profit)
{ 228,420 }{ 228,420 }

{ Asset }{ Liabilities + Equity }

Total Profit: ………2,420……….

2
Prepare a Balance Sheet/ Statement of Financial Position

ABC SDN BHD

Statement of Financial Position
30 March 2022

RM RM
Assets
Current assets
Cash 216,020
Accounts receivable 4,400

220,420
Non-current assets
Office Furniture 8,000
Total assets 228,420

Liabilities and Equity

Current liabilities
Accounts payable 8,000
Loans 18,000
Total liabilities 26,000
Equity
Share capital 200,000
Retained earnings 2,420 202,420
Total liabilities and Equity 228.420

3
From the following financial information on the business of Graceville
Professional Services (owner — D Burton), prepare a worksheet and extract a
balance sheet as at 31 December 2016.

Date Cash Accounts Office Equipment Accounts Capita Profit

March Receivable Furniture Payable l or loss
2022

Totals

4
5