Accounting concepts and principles; general principles of financial reporting and glisclosure (20-25 min) mere are many common accounting practices and procedures that stem directly from well established and accepted concepts and principles.
Requirement
The following examples do not accord with accepted good practice. A few of them violate more than one concept or principle. Identify all the concepts and principles that are not followed in each situation.
a Ellen Watson is having difficulty evaluating the success of her secretarial service business because she does not separate her business assets from personal assets.
b Busy Bee Boutique is a profitable business but its owner, who is very cautious, records all assets at a conservative estimate of what they could fetch in a quick sale.
c In order to save expense and speed up its reporting process. Lively Leggings records cost of sales at a predetermined amount each month regardless of the level of sales.
d Highway Constructions recognises all profit on long-term construction projects at the start of each project.
The amounts on the balance sheet and income statement of Carsten Castings are adjusted for changes in the value of the dollar due to
Inflation during each financial year.
The Sands Golf Club records half of the depreciation on Its fairway mowers when it purchases them and the other half over their estimated useful lives.
Wardley Retailers uses the lower-of-cost-and-net-realisable-value method to account for its inventory. For convenience and to save time,
Wardley uses an estimate of the inventory value determined by its management. This estimate can sometimes differ significantly from that supplied by an independent valuer.
Fancy Frocks sells mainly on credit. Losses on receivables are usually quite small. However, Helen Hines, the owner, another cautious person, uses the collection method to recognise revenue and profit.
Blue Sky Art Supplies changed from the average-cost method to the specific identification method for inventory but did not report the accounting change in the financial statements.
College Surveying does not report any details of a legal action in which it Is the defendant. Arthur Smith, the general manager, believes that the outcome of the case is uncertain and that to report the legal action would introduce subjective data Into the financial statements.