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Mr. Aslam is an owner of wholesale business for spare parts. He has been running this small scale business since last two years. Recently, Mr. Aslam divided his business into two different shops i.e. Shop-A & Shop-B which are located in two different areas of the same city. Shop-A is handled by Mr. Aslam himself and he has given responsibility to his son Mr. Ali for managing Shop-B against fixed monthly salary of Rs. 30,000 per month.
ReplyDeleteShop-A:
During the year, the accounts of Shop-A reflects total sales of Rs. 600,000 out of which Rs. 300,000 has been received just at the time of sales, Rs. 120,000 received after three months following the sales, while remaining amount of Rs. 180,000 not received till the end of accounting period. Mr. Aslam reported the revenue amounting to Rs. 420,000 for a current accounting period instead of reporting Rs. 600,000.
Shop-B:
On the other hand, the accounts of Shop-B reflects total sales of Rs. 450,000 out of which Rs. 400,000 related to credit sales and that amount is not received till the end of accounting period. Mr. Ali reported revenue for Shop-B amounting to Rs. 450,000 instead of reporting Rs. 50,000. This policy of reporting revenue is not in line with policy of Shop-A.
Concern of Mr. Aslam:
Revenue of whole business is not shown as per the expectation of Mr. Aslam. He reviewed the accounts of Shop-B and found different recording policy than Shop-A. He was confused about two different basis of record keeping so he wanted to select one basis of accounting for his business. His son is a business graduate and suggested his father to adopt recording policy in Shop-A similar to Shop-B. His father agreed and switched to new basis of record keeping in Shop-A.
Required:
By considering the above mentioned scenario, you are asked to answer the following questions:
1. Which form of commercial organization is running by Mr. Aslam with his son?
2. Identify the basis of accounting (Cash or Accrual) used by Mr. Aslam and his son for “Shop- A” & “Shop-B”.
3. What is the main and logical reason considered by Mr. Ali to suggest similar record keeping in both shops?
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