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Homework answers / question archive / 1)For over 20 years the accounting profession in many countries has attempted to formulate a method of preparing financial statements that takes account of the effects of price increases (inflation)

1)For over 20 years the accounting profession in many countries has attempted to formulate a method of preparing financial statements that takes account of the effects of price increases (inflation)

Accounting

1)For over 20 years the accounting profession in many countries has attempted to formulate a method of preparing financial statements that takes account of the effects of price increases (inflation). It seems that no proposed method of reflecting the effects of changing prices has gained international acceptance. The decision of the IASB, and the accounting standard setters in many countries, is that no form of accounting for price changes should be made compulsory, but entities are encouraged to present such information. There have been two main methods put forward by various accounting standard bodies for reporting the effects of price changes. One method is based on the movements in general price inflation and is referred to as a General (or Current) Purchasing Power Approach, the other method is based on specific price changes of goods and assets and is generally referred to as a Current Cost Approach. Some bodies have also suggested an approach which combines features of each method. Required: (a) Explain the limitations of (pure) historic cost accounts when used as a basis for assessing the performance of an entity. You should give an example of how each of three different user groups may be misled by such information. (b) Describe the advantages and criticisms of General Purchasing Power and Current Cost Accounting.

2)Tutorial IMA 82 Question 1 Coco ine manufactures chocolate syrup in three departments: Cooking, Mixing, and Botting. Coco uses the weighted average method. All manufacturing inputs are applied uniformly. The following are cost and production data for the cooking department for April (Note: Assume that units are measured in gallons:) Production: Units in process, April 1, 60% complete Units completed and transferred out Units in process, April 30, 30% complete 35,000 60,000 20,000 $95.650.00 $320.650.00 Costs: WIP, April 1 Costs added during Apri I Required 1 Prepare a production report for the cooking department. Round cost per equivalent unit value to the nearest cent and use rounded value in intermediate calculations 2 Prepare the journal entries for A Transfering the Cooking Department cost to Mixing Department B. Transferring the Mixing Department to Bottling Department (assume that the cost transferred out is $465,980) C. Transferring the Bottling Department to finished goods inventory (assume that the cost transferred out is $654.000)

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