1. State THREE (3) external users of financial statement and briefly explain the uses of financial
statements for each user. (6 marks)
2. Assume that you are the branch manager of a local bank. Recently, Dato’ Johari, a business man,
came and see you regarding his application for loan from your bank. You have not dealt with Dato’
Johari previously and knows little about his business activities. Dato’ Johari would like to borrow
RM500,000 to purchase some equipment for his business.
a) What information do you need to help make the lending decisions? (4 marks)
b) What type of information should Dato’ Johari collect and analyse before he even
request for the loan? (4 marks)
3. Identify TWO(2) qualitative characteristics, and provide an example for each characteristic to
support your explanation. (4 marks)
4. The preparation of the financial statements involved the application of the various accounting
concepts. Explain the following basic accounting concepts: (5 marks)
a) Business entity concept
b) Going concern concept
c) Objectivity concept
d) Money measurement concept
e) Time period concept
5. Study the following situations and identify the basic assumption or broad accounting principle
that was violated.
a) The Pastel Paint Company purchased land two years ago at a price of RM250,000. Because
the value of the land has appreciated to RM400,000, the company has valued the land at
RM400,000 on its most recent balance sheet.
b) The Atwell Corporation has not prepared financial statements for external users for over
three years.
c) Don Smith is the sole owner of a company called Hardware City. The company recently
paid a RM150 utility bill for Smith’s personal residence and recorded the RM150 as an
expense.
d) The Golden Book Company purchased a large printing machine for RM1,000,000 (a
material amount) and recorded the purchase as an expense.
e) The Ace Appliance Company is involved in a major lawsuit involving injuries sustained by
some of its employees in the manufacturing plant. The company is being sued for
RM2,000,000, a material amount, and is not insured. The suit was not disclosed in the
most recent financial statements because no settlement had been reached.
For each situation, identify the basic assumption or broad accounting principle that was violated
and explain your answers. (10 marks)