GDB quiz solution

GDB       SOLVE BY AMMAD JAVED

ABC Company has expanded its operations and purchased some furniture for its recently rented show room situated in north of the city, which is expected to have useful life of five years. During the same year the company purchased furniture and other home accessories from renowned designers and sold it to customers from its show room.
You are required to identify the account heads in which the above purchases of furniture will be recorded and why?  You need to give valid reasons to support your answer.”
Solution

1

The furniture that went into the showroom as part of the showroom will be recorded under assets and the cash account. The furniture bought for sale would first go under purchases, and the cash account. When it's sold, the value of the proceeds will got to the sales account and the cash or bank account.

2

The furniture purchased for the rented show room will be recorded as “Fixed Assets” because it’s not for sale.The furniture and other home accessories will be recorded as “Goods purchased” because these items are purchased for selling. Further we can say that these are “current assets” related to “Inventory items”.