1. One month before the end of the financial year Christine paid £12,000 for the annual rent for her office. However, Christine decided not to include the payment in her cash book because the payment was for rent from 1 June 2011 to 31 May 2012. In other words, most of the amount related to the next financial year. Should she have included the amount?

 

2. During the year Christine purchased the following items: a calculator for £12, an office kettle for £9 and a paintingfor £8.50. These items are expected to be used by the business for many years. Christine wonders whether the expenditure on these items should be ‘written off’over their life, just like the office computer and the office furniture. In other words, should these  items be treated as ‘capital’ or ‘revenue’ expenditure?

 

3. Christine uses her car for business purposes during the week. However, at weekends she uses it for personal travel. Total motor expenses for the whole year are £6,700. She is not sure how to divide the motor expenses between business and personal use.

 

4. During the year Christine bought a new printer for her computer. The printer cost £400. However, three months’ later she noticed that the shop reduced the price of the printer to £199. She is not sure what figure - £400 or £199 – to put in her records. In other words, how should she value the asset?

 

5. Christine has been supplying nurses to a small, private hospital for three months but has not yet received her commission or recruitment fee. As at the end of June 2011 the hospital owedher £24,000.Should she includethis amount in her accounts?

 

 

a)Explain how Christine should treat each of the five transactions listed above according to the appropriate accounting concepts.

(Paraphrase each problem and then suggest a solution. Write each problem and solution in five separate paragraphs).