Ruchica’s father is the sole proprietor of ‘Friends Gifts’ , a firm engaged in the sale of gift items. In the process of preparing financial statements, the accountant of the firm Mr Goyal fell ill and had to proceed on leave. Ruchica’s father was in urgent need of the statements as these had to be submitted to the bank, in pursuance of a loan of Rs 5 Lakh applied for the expansion of the business of the firm. Ruchica who is studying accounting in her school, volunteered to complete the work. On scrutinizing the accounts the banker found that the value of the building bought a few years back for Rs 7 lakhs has been shown in the books at Rs 20 lakhs, which is the present market value. Similarly as compared to the last year the method of valuation of stock was changed, resulting in value of goods to be about 15 per cent higher. Also, the whole amount of Rs 70,000/- spent on purchase of personal computer (expected life 5 years ) during the year had been charged to the profits of the current year. The banker did not rely on the financial data provide by Ruchica. Advise Ruchica on the mistakes committed by her in the preparation of financial statements in the context of the basic concepts in accounting.

We mostly work on historical cost accounting concept so don't take market value. Opt to go withaccounting policeis as much possible and changes done mention it as a footnote. Just add up the appreciation value of land yearwise with the note in the end. 

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true thnx

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