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BASIC ACCOUNTING CONCEPTS CHAPTER 2

INTRODUCTION

This topic will be covering the financial reporting framework in Malaysia,

accounting concepts, accounting equations and double-entry system.

2.1 Financial Reporting Framework in Malaysia

a. The basic accounting framework and concepts used by accountants

in preparing financial standards in Malaysia.

 The financial reporting framework is the framework that an entity uses

to prepare its financial statements.
 The framework sets the basis for accounting standards that govern
how the financial statements are prepared.
 Malaysian Accounting Standard Board (MASB) has adopted
International Financial Reporting Standards (IFRS) and companies in
Malaysia are required to comply effectively from the accounting
period beginning or after 1 January 2006.  Full convergence with
IFRS took place on 1 January 2012.  Hence, any reporting standards
issued by the International Accounting Standard Board will directly
impact the Malaysian financial reporting environment.
 
b. The difference in accounting framework among Generally Accepted
Accounting Principles (GAAP), Malaysian Private Entities Reporting
Standard (MPERS) and Malaysian Financial Reporting Standards
(MFRS).

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Generally Accepted Accounting Principles (GAAP)

 GAAP is a set of accounting principles, procedures and guidelines

used by  U.S. companies to prepare their financial statements and
other accounting disclosures.
 The ultimate goal of GAAP is to ensure a company's financial
statements are accurate, reliable, consistent, and comparable with
one another.
 The different opinions between the accountants can be solved by
referring to GAAP.
 GAAP is important because it helps maintain trust in the financial
markets.  If not for GAAP, investors would be more reluctant to trust
the information presented to them by companies because they would
have less confidence in its integrity. GAAP also helps investors
analyze companies by making it easier to perform comparisons
between one company and another.

Reporting entities are generally divided into two sectors – public sector and
private sector.  In Malaysia, private sector entities prepare their financial
statements based on either the Malaysian Private Entities Reporting
Standard (“MPERS”) or the Malaysian Financial Reporting Standards
(“MFRS”).
 
Malaysian Private Entities Reporting Standard (MPERS)

 MPERS is a simplified financial reporting framework to be used by

private entities.   MPERS provides simplification to certain accounting
requirements to account for transactions or events on the basis of
cost-benefit, taking into consideration the reporting responsibility of
private entities.

 Who should choose MPERS?

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 Small SMEs emphasise on cost saving (less compliance cost

involved compared to MFRS).
 Small SMEs that do not plan to go for Initial Public Offering (IPO) or
stock launch in the foreseeable future.
 
Malaysian Financial Reporting Standards (“MFRS”)
 MFRS is a full suite standard aimed for non-private entities that are
required to prepare and lodge their financial statements with the
Security Commissions (SC), Central Bank of Malaysia, and/or
Companies Commission of Malaysia (CCM).
 It is fully compliant with the International Financial Reporting
Standards (IFRS) framework, which enhances the credibility and
transparency of financial reporting in Malaysia.
 Who should choose MFRS?
 Company with holding company that needs to prepare a group
consolidated accounts with Full FRS standard (easier for
consolidation and no major adjustment is required).
 Company planning for IPO.
 
c. Regulatory bodies in Malaysia

The accountancy profession in Malaysia is governed by the Malaysian

Institute of Accountants (MIA) through the powers conferred by the
Malaysian Accountants Act 1967. 

Other regulatory bodies include: 

1.       Companies Act 1965
2.       Financial Reporting Act 1997
3.       Securities Commission Guidelines
4.       Bursa Malaysia
5.       Bank Negara Malaysia
6.       Inland Revenue Board of Malaysia (LHDN)

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2.1 ACCOUNTING CONCEPTS

(1) Historical Cost

(2) Monetary Measurement
(3) Economic Entity
(4) Going Concern
(5) Consistency
(6) Accounting Period
(7) Materiality
(8) Revenue Recognition
(9) Expenses Recognition (Matching Concept)
(10) Full Disclosure
(11) Objectivity
(12) Prudence
(13) Fair Value Measurement

(1) Historical Cost Concept

⮚ The acquired assets and services should be recorded at their
actual cost.
⮚ The cost is a reliable measure and can be approved and should
continue reporting the historical cost of an asset over its useful
life.
⮚ Example:
▪ The company purchases a car from supplier with a cost
price RM20,000 at 21 August 2014. The market value
increases up to RM25,000 on the next day. What is the
cost should be recorded by the company? Why?
Explanation:
▪ The value that should be recorded is RM20,000 because
cost is a reliable measure.

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(2) Monetary Measurement Concept

⮚ Money is the common denominator in business. Expressing
transactions and events in monetary units is crucial to the use of
financial statements for business communications.
⮚ Accounting generally assumes a stable monetary unit. Example
of monetary units are the dollar in the United States.
⮚ Example:
▪ A transaction occurred in the organization but the value
cannot be determined.
Explanation:
▪ The transaction must be recorded in the monetary unit
concept and the value must not change with the inflation
situation.

(3) Economic Entity Concept

⮚ The activities of the entity be kept separate and distinct from the
activities of the owner and of all other economic entities such as
the owner of the entity, supplier and customer.
⮚ The entity needs to be evaluated separately and the transaction
of different entities should not be accounted for together.
⮚ Example:
▪ The company purchases a car for his wife by using money
from the business’ operations. He had recorded the
purchases as a business’ assets. Besides that, all the
expenses such as fuel oil was recorded as business
expenses.
Explanation:
▪ The company does not follow the Separate Entity Concept.
The purchase should be recorded as drawing because the
transaction was the personal transaction.

(4) Going Concern Concept

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⮚ The enterprise will continue in operation long enough to carry out

its existing objectives. It means that the entity will remain in
operation for the foreseeable future.
⮚ Most firm resources such as supplies, land, buildings and
equipment are acquired to use rather than to sell.
⮚ Example:
▪ The company purchases a car with a cost of RM20,000 with
the estimated useful life for 10 years. The market value for
that car is RM25,000. It is suggested that the car should be
depreciated for 5 years because the business is expected to
make a clearance in a short period.
Explanation:
▪ The suggestion is rejected because it is contra with the
Going Concern Concept. The vehicle should be recorded as
the value of RM20,000 and must be depreciated for 10
years because the trade must be assumed to operate for the
period that cannot be expected.

(5) Consistency Concept

⮚ Consistency means that a company uses the same accounting
principles and methods from year to year.
⮚ When financial information has been reported on a consistent
basis, the financial statements permit meaningful analysis of
trends within a company.
⮚ Example:
▪ The company uses straight line method in depreciating the
fixed asset of the company. The company decides to
change to declining balances method.

Explanation:

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▪ It does not follow the rules of the consistency because the

method should be used from year to year. Any changes
should be disclosed in the notes to the financial statements.

(6) Accounting Period Concept

⮚ Time period covered by financial statements is known as
accounting period.
⮚ Time period assumption means business activities can be
divided into specific period such as a month, a quarter and a
year in order to enables comparison of business performance
over time.
⮚ Example:
▪ The company has established at 1 January 2013. The trade
closes the business account every 12 months at 31
December every year. Explain the concept involved.
Explanation:
▪ That is normal condition when the trade follow the
Accounting period where the financial statements will be
held every 12 months.

(7) Materiality Concept

⮚ Materiality relates to an item’s impact on a firm’s overall financial
condition and operations.
⮚ An item is material when it is likely to influence the decision of a
reasonably prudent investor or creditor.
⮚ To determine the materiality of an amount, the accountant
usually compares it with such items as total assets, total liabilities
and net income.
⮚ Example:
▪ A company purchases a calculator at cost RM20 and it will
depreciate for 5 years over its useful life. Give your opinion.

Explanation:

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▪ Although the proper accounting would depreciate the

calculator over its useful life, but this cost are considered
immaterial. It will not make a material difference on total
assets and net income.

(8) Revenue Recognition Concept

⮚ Revenue is recognized in the period they are earned.
⮚ When the merchandise has arrived to the buyer or when services
are rendered even cash receivable
⮚ Criteria:
✔ There is a change of ownership/title.
✔ Buyers are willing to pay.
✔ The stability of the currency.
✔ Buyers are able to pay.
⮚ Example:
▪ Azmal is an entrepreneur pottery. He has received 100
reservations porcelain vase on January 1, 2018 and has
received a payment of RM1,000. The booking was sent on
January 15, 2018. When the sales above should be
recognized? Give your opinion.

Explanation:
▪ En. Azmal need to recognize sales revenue of RM1,000 on
15 January 2018 because of a change of ownership at that
date.

(9) Expense Recognition Concept

⮚ Expenses are recorded in the accounting period in which it has
been involved for a business revenue.
⮚ Expenses are recognized when they are incurred even if
payment has not been made.
⮚ The goal - to find out the actual amount of revenue and
expenditure for a financial period.

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⮚ Example:
▪ Pn. Tina has recorded expenses of RM2,000 for the utility in
December 2019, although payment will only be made in
January 2020.
Explanation:
▪ Pn. Tina agreed to the concept of expense recognition as an
expense of the current period and should be recorded in the
current accounting period.

(10) Full Disclosure Concept

⮚ The company should report the sufficient information (ie:
relevant, reliable, comparable) so that external parties can make
a reasonable decision.
⮚ Example:
▪ Farida businesses have made changes in stock valuation
method used. The company did not disclose the information
in the financial statements for the accounting period.
Explanation:
▪ The situation does not comply with the concept of full
disclosure where a change is made it should be reported in
the notes to the accounts. The aim is to inform the user of
changes in the financial statements.

(11) Objectivity Concept

⮚ All accounting data must be evidence of valid and reliable to
support transactions occur.
⮚ The goal - to prevent accountants in giving subjective and
inaccurate opinion.
⮚ Example:
▪ KZB basic business is only issued a receipt for cash
transactions, but for the return of goods sales transactions
no source document is issued. Give your opinion.
Explanation:

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▪ The Company does not comply with the concept of

objectivity for the return of goods sales transaction for all
transactions that occurred needs to be confirmed with the
release of the source document. In addition to the evidence
it can also facilitate the recording.

(12) Prudence concept

 Do not overestimate the amount of assets and revenues or

underestimate the amount of liabilities and expenses.  
 Only record a revenue transaction or an asset when it is certain, and
record an expense transaction or liability when it is probable.  
 Also known as the Conservatism concept.

  Example:
Inventory is recorded at the lower of cost or net realizable value
(NRV) rather than the expected selling price.

  Explanation:
This situation does comply with the prudence concept.  This ensures
profit on the sale of inventory is only realized when the actual sale
takes place.

(13) Fair Value Measurement concept

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 According to FRS 13, Fair Value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.

 This concept states that assets and liabilities should be reported at

fair value (the price received to sell an asset or settle a liability).  Fair
value information may be more useful than historical cost for certain
types of assets and liabilities. 

 In determining which measurement principle to use, companies weigh

the factual nature of cost figures versus the relevance of fair value.  In
general, most companies choose to use cost.   Only in situations
where assets are actively traded, such as investment securities, do
companies apply the fair value principle extensively.

 Example:
Certain investment securities are reported at fair value rather than the
purchase price.

 Explanation:
This situation does comply with the fair value measurement concept.  
This is because market price information is usually readily available
for these types of assets.   Only in situations where assets are
actively traded, such as investment securities, companies will apply
the fair value principle extensively.

 According to the fair  value measurement concept, the actual cost

value is still used as value to be recorded in the book as what stated
in the historical cost concept.  However, at the date financial
statements are prepared, all values in the book are  going to be
reviewed again to ensure that the values in the accounting books are
fair values.  This action is taken so that the value to be reported in the
financial statements can give us up to date value of the company
assets.

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In other words, all figures that reported on historical cost concepts

need to be adjusted if they no longer reflect their fair value.

Example:
If there is an item of an asset or liabilities that does not reflect their
fair value, an adjustment should be made to the historical value.

Statement of financial position

As at 31 December 2021
Non-Current Asset
Machinery                                       xxx
-Accumulated depreciation             (x)   xxx
 
Current Asset
Account Receivable                     xxx
-Allowance for Doubtful Account           (x)   xxx      

According to fair value measurement concept, the actual cost value is still
used as value to be recorded in the book as what stated in concept of
historical cost.  However, at the date of financial statements are prepared,
all values in the book were going to be reviewed again to ensure that the
values in the accounting books are fair values.  This action is taken so that
the value to be reported in the financial statements can give us up to date
value of the company assets.

In other words, all figures that reported on historical cost concept need to
be adjusted if they are no longer fair value.

Example:
If there is an item of an asset or liabilities that does not reflect their fair
value, an adjustment should be made to the historical value.
As at 31 December 2021, the machinery that purchased on 1/1/2021 at a
price of RM500,000 has experienced depreciation of 10% per annum.

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The same goes for Accounts Receivable with a value of RM80,000. It is

expected that there will be 5% of Accounts Receivable that cannot be
collected.

Explanation:
Under the concept of fair value, all non-current assets purchased and used
are subject to depreciation.  Therefore, to give a true and fair value of these
assets, depreciation will be made.
The same goes for the value of Accounts Receivable.  As we have learned
that there will be 5% of Accounts Receivable that cannot be collected, the
identified value should be taken into account in order to give a fair value to
the Accounts Receivable

Statement of financial position

As at 31 December 2021
NON CURRENT ASSET
Machinery 500,000  
-Acc. Depreciation (50,000) 450,000
     
CURRENT ASSET    
Ac. Receivable 80,000  
-AFDA (4,000) 76,000

2.2 ACCOUNTING EQUATION

ASSETS = LIABILITIES + OWNER’S EQUITY

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ASSETS = LIABILITIES + (CAPITAL + REVENUE -

EXPENSES - DRAWING)

(1)Assets
⮚ Wealth / resources owned by the business.
⮚ Assets are divided into two:
(i) Non-current Assets
⮚ Assets that have a life of more than one year.
⮚ Divided into three:
i. Tangible/fixed assets - can be seen physically.
Example: buildings, vehicles, equipment
ii. Intangible assets – cannot be physically.
Example: - Trademarks, patents, copyrights
iii. Long-term investments - fixed deposits for more than a
year, the purchase of bonds.

(ii)Current Assets
⮚ Exist in one accounting period and can be converted into
cash within a year.
⮚ Constantly of changing form and value.
⮚ Example: - Inventory, Accounts Receivable, Cash, Bank and
so on.

(2)Liability
⮚ Debt / businesses obligation to be paid by business entity to
another party.
⮚ Liabilities divided into 2 types:
(i) Non-current liabilities (> 1 year)
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⮚ Debt to be settled within a period exceeding one year.

⮚ Example: - Long-term loans, mortgage
(ii)Current liabilities (< 1 year)
⮚ Debt due in less than a year.
⮚ Example: - Accounts payable, expense payables, unearned
revenue.

(3)Owner’s Equity
⮚ Owner’s claims on the business. They include:
(i) Capital invested by the owner into the business.
(ii)The net profit result of the business activities.
⮚ The element involved in owner’s equity:
(i) Capital
⮚ Consists of assets in the business by the owners.
⮚ It will add the owner's equity.
(ii)Drawings
⮚ Owner issuing asset (cash or merchandise) for its own use.
⮚ The effect will be to reduce the value of owners' equity.
(iii)Profit
⮚ Expenditure
The effect will reduce the owner's equity.
⮚ Income
The effect will add value to the owner's equity.

(4)Revenues
⮚ All income from the sale of goods or the provision of services
based on the concept of revenue recognition.
⮚ 2 types of revenue:
(i) Revenue of Business
⮚ Example: - Sales, service revenue

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(ii)Revenue of Non Business

⮚ Example: - Interest income, rental income, gains on sales of
fixed assets

(5)Expenses
⮚ Expenses use up assets or create liabilities in the course of
operating a business. Expenses decrease equity.
⮚ 2 type of expenses:
(i) Operating expenses
⮚ Example: Utilities, sales commissions, delivery expense
(ii)Non-operating expenses
⮚ Example: Property taxes on the administrative office building

ANALYSIS OF TRANSACTION

The accounting equation shows how assets, liabilities, and owner’s equity
are related. Assets appear on the left side of the equation, and the liabilities
and owner’s equity appear on the right side.

Example 1

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Owner start a new business with cash RM1,000.

Asset = Liability = Owner Equity
(RM) (RM) (RM)

Example 2
Owner withdraws RM100 cash from the business for his own use.
Asset = Liability = Owner Equity
(RM) (RM) (RM)

Example 3
Received RM3,000 cash from Maybank for a business loan.
Asset = Liability = Owner Equity
(RM) (RM) (RM)

Example 4
The business pays loan RM100 with cash.
Asset = Liability = Owner Equity

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(RM) (RM) (RM)

Example 5
Business performs a service on credit RM2,000 for YY Agency.
Asset = Liability = Owner Equity
(RM) (RM) (RM)

Example 6
Business pays RM290 for utilities expenses.
Asset = Liability = Owner Equity
(RM) (RM) (RM)

Do It Yourself

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Date Transactions
Sept Sonic invest RM50,000 cash to start a photography business.
1
3 Sonic purchase a photo processing machine costing RM1,000
cash.
5 Sonic withdraw RM10,000 cash for personal use.
6 Sonic borrow RM20,000 cash from Digi Bank.
25 Sonic pay off RM5,000 of the bank loan.
26 Sonic provide professional photography service for a wedding.
Receive RM2,000 cash and another RM1,000 will be received
within 14 days.
28 Sonic pay RM500 cash for his employee’s salary. RM300 cash for
utilities and RM200 cash for shop rental.

Transaction Analysis

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Date Assets = Liabilities + Owner’s

Equity
Cash + Acc. + Equipment Loan Capital
Receivable
1
3
5
6
25
26
28

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2.3 DOUBLE-ENTRY SYSTEM

⮚ Accounting uses the double-entry system, which means that we
record the dual effects of each transaction. As a result, every
transaction affects at least two accounts. It would be incomplete
to record only the giving side, or only the receiving side, of a
transaction.

DEBIT = The left side of the account

CREDIT = The right side of the account

(Dr.) Title of (Cr.)

Account
Date Explanation RM Date Explanation RM

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⮚ Rules of Debit and Credit

Account Record Dr./Cr. Normal
Balance
Asset Increase Debit
Expenses Debit
Drawings Decrease Credit
Liability Increase Credit
Equity Credit
Revenue Decrease Debit

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EXERCISES

Question 1
Specify whether accounting principles or concepts involved and give your comments on
the following situations given: -
a) TDE Company bought a hectare of land in the past five years at a price of
RM200,000. The current market price for the land has increased to RM300,000.
TDE Company wants to report the value of the land at the market price of
RM300,000 in the current year financial statements.
b) Perniagaan Jadi reported that the computers at their house as an asset in his
business even the computer is being used for personal use only.
c) BZ Enterprise buy a trash worth RM25 and is expected to be used for 10 years.
Purchase of trash is reported as an expense in the financial statements.
d) EXP Property Agency, had been providing services on credit to customers
totaling RM1,000. This was recorded as a result of service in that month even if
cash will be accepted only on a few months later.
e) Syarikat SNA Berhad does not explain the change in depreciation calculation
method used in the 'notes to the accounts' in the current year financial
statements.
f) In December, Syarikat Cempaka has agreed to carry out an advertising
campaign of goods through a network of leading television to be made
throughout the year. The company's accounting period is the normal calendar
year (1/1 - 31/12). The television network company asked for full payment of
RM600,000 in December at the beginning of the advertising campaign to be
launched. Syarikat Cempaka recorded the transaction as follows:
Advertising expenses = increased to RM600,000
Cash = reduced RM600,000
g) At the end of the first year of business, Mr Meor deeply regrets on December
31st, 2019 that he had used the straight-line method in determining the
depreciation of computers but have chosen to use the declining balance method
for the second year.
h) Vehicles in the balance sheet had been recorded at fair value where the value is
less than the RM70,000 of cost value.

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Question 2
Identify the following items whether it is either assets, liabilities, revenue, expense or
equity such as the following example:-
Asset / Liabilities/
No. Account Name Income / Expenses /
Equity
1. Accounts Receivable Asset

Asset / Liabilities/
No. Account Name Income / Expenses /
Equity
1. Accounts Payable
2. Bank Loans
3. Equipment
4. Capital
5. Salary expenses
6. Accrued Expenses Salaries/Payable
7. Cash
8. Bank
9. Unearned Revenue
10. Bank Interest Revenue
11. Utilities expenses / Fees
12. Insurance Expenses
13. Prepaid Insurance
14. Notes Payable
15. Notes Receivable
16. Service Revenue
17. Cash Drawings
18. Advertising expenses
19. Accrued advertising
20. Land
21. Commission
22. Supplies
23. Supplies expenses
24. Stationery expenses
25. Commission receivables

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26. Rental income

27. Unearned rental income
28. Interest expenses
29. Interest payable
30. Bad debts expenses
31. Depreciation expenses
32. Buildings
33. Prepaid rent
34. Equipment
35. Vehicles

Question 3
Show the impact of the increase and decrease (-) for the transactions below:
Liabilitie Owners’
No. Transactions Asset
s Equity
1. Owners bring in cash of RM10,000 into the
business.
2. Open a business account at Maybank with
cash of RM4,000.
3. Provide services to the customer named
Mr. Ali worth RM950 and he promise to pay
in the next month.
4. A debtor settled his debt of RM150 with
cheque.
5. The owner of the business of withdraw
RM150 cash for personal use.
6. Salary expenses of RM1,000 paid to an
employee.
7. Utility bills have been received amounting
RM500 and will only be paid next month.
8. A customer has paid to RM500 to the
business for services that will be provided
in next month.
9. Bought furniture for business premises
worth RM7,000 in credit.
10. Produce billing services of RM1,500 to the
customer for services rendered.
11. Make a loan from Bank Rakyat amounting

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RM20,000.

Question 4
Based on question 4, set up doubles entries based on format below:
Number Details Debit(RM) Credit (RM)
1. Cash 10,000
Capital 10,000

Question 5
The following are transactions for Perniagaan Murisah (PM) for the month of April 2021.
April 3 Puan Murisah added capital of RM50,000 in cash.
8 Cash received of RM2,000 from the debtor.
10 Purchase the equipment of RM10,000 in cash.
13 Paid RM4,000 to supplier.
15 Provide services of RM6,000 on credit.
20 Pay electricity bills and water bills of RM1,040.
23 Pay services of RM12,000 in cash.
25 Pay wages of RM1,700.
27 Puan Murisah take cash of RM200 for her own use.
30 Receive payment for services rendered on April 15 th.

REQUIRED:
Analyse the above transactions using the following format:
Date Cash Accounts Equipment = Accounts + Capital
(+/-) Receivable (+/-) Payable
(+/-) (+/-)
April. + RM50,000 + RM
3 50,000

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Question 6
(i) The following is Perniagaan Manis (PM) business transaction for the month of
September 2021.
Sept. 3 Puan Manisah top-up the capital in cash of RM25,000.
8 Received RM1,000 cash from the debtor.
10 Purchased of equipment RM5,000 in cash.
13 Paid RM2,000 to the supplier.
15 Provided services of RM3,000 for credit.
20 Paid RM520 for electricity and water bills.
23 Provided services of RM6,000 in cash.
25 Paid wages of RM850.
27 Puan Manisah took RM100 cash for her own personal use.
30 Received payment for services rendered on September 15.

REQUIRED:
Analyse the above transactions using the following format:
Date Cash Accounts Equipment = Accounts + Capital
(+/-) Receivable (+/-) Payable (+/-)
(+/-) (+/-)
Sept. + + RM
3 RM25,000 25,000

(ii) Perniagaan Krubong (PK) has been involved with the following situations:
a) In order to ensure that the consumers get relevant information, PK reports
their building at market value in the financial statements.
b) PK accounting records only take into account transactions data that can be
expressed in monetary values.
c) Encik Wan Halim, the owner of PK recorded his personal expenses as part of
operating expenses of PK.

REQUIRED:
State and justify whether the accounting concepts had been used correctly or incorrectly
by Perniagaan Krubong (PK) for each of the above situations.

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Question 7
(i) For each of the following cases, you are required to identify the accounting
concepts involved and explain why you agree or disagree with the action taken.
a) A deposit paid by the customer for the booking of goods in the next
accounting period have been recognized as revenue for the current period
even though the the goods have not yet been sent. This is to increase the
sales and profitability of the company.
b) The business owner and his family travelling expenses to Europe has been
entered as the expenditure for a business trip.

(ii) The followings are the transactions that occurred during the month of November
2020 for Perniagaan Nurain business in Subang.
Date Transactions
Nov. 1 Buy RM3,400 cash for equipment.
5 Settling RM2,200 of accounts payable.
14 Cash Sales RM2,800 and RM2,250 credit sales.
30 Pay the employee's monthly salary of RM3,200.

REQUIRED:
Analyse of the above transactions based on the accounting equation by using the
following format.
Date Cash Accounts Equipment = Accounts + Capital
(+/-) Receivable (+/-) Payable
(+/-) (+/-)
Nov. 1

Question 8
You are required to identify the proper accounting concepts involved and need to be
complied with for each of the following situations.
(1) Perniagaan Ruzitas (PR) has been using the straight-line depreciation method for
recording depreciation expense and accumulated depreciation. In 2020, PR
accountant has converted the straight line method to the declining balance method
without disclosing it in the financial statements.
(2) Perniagaan Tabaya have bought a piece of land at the invoice price of RM50,000
and the market value is RM55,000. The company is not sure on the amount that
should be recorded.
(3) Puan Rohaidas believed that the inventory valuation method of Last in and First
Out (LIFO) can be changed to First in and First Out (FIFO) method at any time.

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(4) Perniagaan Lamanda believed depreciation expense for property, furniture and
office equipment should not be recorded in the book of business.
(5) Jai Enterprise vehicle maintenance expenses in July 2020 was RM7,000. This
amount includes RM800 car maintenance expenses of the business owners.

Question 9
On August 1, 2021, Soleha formed a service business. The followings are the
transactions occurred in August 2021:
Date Transactions
August 1 Started the business with a capital of RM10,000.
2 Purchased office supplies on credit RM1,150.
4 Received RM4,500 cash for services performed.
10 Paid RM675 to creditors.
15 Sent RM3,250 bills to customers for services performed.
18 Paid RM680 for vehicles rented.
25 Office supplies used RM935.
27 Cash withdrawals of RM1,000.
29 Paid RM2,500 for August office rent.

REQUIRED:
Show the effects of the transactions in August 2021 on the Accounting equation using
the following table:
ASSET = LIABILITIES + OWNERS EQUITY
Date Cash Office Accounts = Accounts Capital Revenues
supplie Receivable Payable @
s Expenditure

August 1 10,000 10,000

Question 10
Date Transactions

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January Started the business with a capital of RM30,000.

1
3 Bought RM18,000 laundry equipment on credit from Syarikat Peralatan
Maju Sdn. Bhd.
4 Bought supply for RM6,000 in cash.
10 Send invoices amounting RM2,550 to Mutiara Resort as a laundry service
that has been done.
12 Send invoices RM1,000 to Perniagaan Hassan for carpet cleaning
service.
13 Paying half of the debt incurred in the acquisition of equipment on January
3rd, 2021.
19 Received a cheque from Mutiara Resort for invoices that have been sent
on January 10th, 2021.
23 Withdraw RM1,000 for family use.
25 Paid RM800 for stores rental in January 2021.
28 Paid RM350 for store utility expenses.
29 Taking RM30 soap for their own personal use.

REQUIRED:
Show the effects of transactions for the month of January 2021 on the accounting
equation based on the following schedule:

ASSETS = LIABILITIES + OWNERS EQUITY

Date Cash / Bank Equip- Supply Accounts Creditors Capital Revenue/
ment Receiva- Expendi-
ble ture
Jan. +RM30,000 +RM30,000
1

Question 11

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Complete the gaps in the following table:

ASSETS EXPENSES LIABILITIES CAPITAL REVENUES
1 67 500 85 700 50 500 53 700
2 7 000 8 000 21 000 70 000
3 112 000 85 000 171 000 25 800
4 7 900 3 200 2 750 4 200
5 32 500 6 600 7 200 5 700

Questions 12
For each of the following transactions, REQUIRED:
a) Show the effect of the transactions on assets, owner’s equity, liabilities, revenues
and expenses.
b) State the accounts to be debited and credited.
Transactions Effect of transaction Account to be
(Increase/Decrease) (Debited/Credited)
1 Cash purchase RM 100
2 En Kassim started business with
cash RM 10 000 , premises
RM 25 000 and loan RM 15 000
3 Bought computer worth RM
2,500 by cheque
4 Paid salary of RM 1,500 by cash

Question 13
Recognize the effect of changes in the assets, liabilities and owner’s equity for each of
the following transactions:
Example: Bringing RM5,000 cash as additional capital.
Answer: Assets (+), Owner’s Equity (+)
(i) Making loans of RM1,000 from Bank Mutiara.
(ii) Pay RM550 cash for the office rent.
(iii) Withdraw RM200 cash for own use.
(iv) Buy office equipment worth RM400
(v) Received services revenue of RM150 in cash.
(vi) Received a cheque of RM500 from the debtor.
(vii) Pay advertising expenses RM250 by cash.

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