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.
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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.
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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.