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(a) Current replacement cost accounting by Edwards and Bell which differentiates between profits from trading and gains that result from holding an asset. (6 marks)

Question 2 Flora, a bonsai amateur, has found a perfect business idea to turn bonsai tree into a business. She intends to purchase the bonsai trees from the wholesale nurseries and maintain them while looking for buyers. On 1 August 2020, she used all her savings to buy a small piece of freehold land at the outskirt of her hometown for RM55,000 and ten bonsai trees at RM2,750 each. Flora managed to sell all the ten bonsai trees on 31 May 2021 at RM49,500 to a corporate office as decorative items and on the same day she purchased another ten bonsai trees with similar shape and condition at RM33,000. As at 31 July 2021, all the ten bonsai trees remained unsold. The replacement cost of these trees was RM41,250 and that of the land was RM55,000. Additional information on relevant price indices: 1 August 2020 31 December 2020 31 March 2021 31 May 2021 31 July 2021 : 100 : 101 : 102 : 103 : 104 Required: Prepare the statement of profit or loss for the year ended 31 July 2021 and the statement of financial position as at 31 July 2021 for Flora, using the following normative theories: Question 2 Flora, a bonsai amateur, has found a perfect business idea to turn bonsai tree into a business. She intends to purchase the bonsai trees from the wholesale nurseries and maintain them while looking for buyers. On 1 August 2020, she used all her savings to buy a small piece of freehold land at the outskirt of her hometown for RM55,000 and ten bonsai trees at RM2,750 each. Flora managed to sell all the ten bonsai trees on 31 May 2021 at RM49,500 to a corporate office as decorative items and on the same day she purchased another ten bonsai trees with similar shape and condition at RM33,000. As at 31 July 2021, all the ten bonsai trees remained unsold. The replacement cost of these trees was RM41,250 and that of the land was RM55,000. Additional information on relevant price indices: 1 August 2020 31 December 2020 31 March 2021 31 May 2021 31 July 2021 : 100 : 101 : 102 : 103 : 104 Required: Prepare the statement of profit or loss for the year ended 31 July 2021 and the statement of financial position as at 31 July 2021 for Flora, using the following normative theories

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