The correct answer is: D. i and iii are correct
- Statement (i) is correct. Credit on investment is calculated as a part of the final account preparation process. The final account preparation process involves the following steps:
- Recording all the transactions of the business in the journal.
- Posting the journal entries to the ledger.
- Preparing the trial balance.
- Preparing the profit and loss account.
- Preparing the balance sheet.
- Preparing the notes to accounts.
In the final account preparation process, the credit on investment is calculated as follows:
Credit on investment = Opening balance of investment + Net profit – Drawings – Closing balance of investment
- Statement (ii) is incorrect. Stock valuation is not necessary to determine profit by creating a business account. Profit can be determined by the following formula:
Profit = Sales – Cost of goods sold – Operating expenses
Stock valuation is only necessary to determine the cost of goods sold.
Statement (iii) is correct. Working audit is a statutory requirement for auditing a company. A working audit is a detailed examination of the books and records of a company to ensure that they are accurate and complete. The working audit is conducted by the company’s auditors and is required by law.
Statement (iv) is incorrect. Garner vs. Murray case does not deal with the settlement of accounts in case of bankruptcy of a partner of a partnership firm. The Garner vs. Murray case deals with the liability of partners in a partnership firm. The case held that partners are jointly and severally liable for the debts of the partnership firm.