VCE Accounting Question Thread!

[chasej]

Definitely won't be assessed in the exam. For SACs, technically the school could assess anything they want but it is highly unlikely you will be asked for a definition. They may get you to fill in one though. Feel free to skip the session if you feel like you have a good grasp of double entry.

Thanks. I'm pretty sure my teacher won't assess them so I'll just ignore them.

[smile+energy]

Market value is the current value of an item if sold now, eg a car bought for $30000 2 years ago may now have a market value of $24000.
As Assets are recorded at historical cost, the balance sheet will not show the current value of these (even a carrying value does not directly relate to market value).

However I think this question is confusing, the difference between total assets and liabilities is the Owner's Equity (as per the accounting equation), and I don't see how this relates at all to the market value of the business at a whole.

Thanks for your help
Yeah, the question made me confused too

[smile+energy]

Accounting reports should not be used as a valuation tool. The difference between total assets and liabilities is a number - and only a number. In theory, it represents owner's equity (the value of the owner's stake in the firm) but in practice this figure is meaningless. Owner's equity differs to market value in that market value can only be discovered at the point of sale. Market value is based on supply and demand, brand loyalty among other things and is not necessarily indicated by the value of the firm's owner's equity.

Really good answer, thanks

[p.taaa]

Do we need to know analysing charts? Like do we have to know the definition of an analysing chart etc? I know they aren't account reports but was wondering whether they would ever appear on the exam etc.

(I did a lot of practice with ledgers last year so if I don't need to know AC's I'll just skip the section.)

No not really, analysing charts are just there to aid learning. It helps students understand how debits and credits work because its their first time learning it. i also highly doubt that it will appear on the exam, yet it is pretty straight forward and easy to do. i've never seen an analysing chart in a practice paper/ exam
Hope this helps!

[Jason12]

What is a situation in which a vehicle would be classified as a current asset?

[abcdqdxD]

What is a situation in which a vehicle would be classified as a current asset?

If Vehicle falls under Stock Control, i.e. the firm sells cars as its main source of revenue generation.

[chasej]

If Vehicle falls under Stock Control, i.e. the firm sells cars as its main source of revenue generation.

Couldn't it also be if the vehicle is expected to be sold/decommissioned within 12 months. As wouldn't a car seller list vehicles which it intends to sell as stock in the balance sheet?

[abcdqdxD]

Couldn't it also be if the vehicle is expected to be sold/decommissioned within 12 months. As wouldn't a car seller list vehicles which it intends to sell as stock in the balance sheet?

Yep you're also right. As I previously said, Vehicle would fall under stock control if the firm is a car dealer but the vehicle in itself is still a current asset.

[smile+energy]

I am confused about this sentence, can someone explain it for me?
A vehicle purchased by the owner but then contributed to the business. The asset cannot be valued at the original price paid by the owner, as it is the cost to the business. 
And can you please explain the Going concern principle by using an example for me?
Thanks in advance.

[jono88]

 The going concern principle means that a business entity will continue to operate indefinitely, or at least for another twelve months.

Financial statements are prepared with the assumption that the entity will continue to exist in the future, unless otherwise stated.

The going concern assumption is the reason assets are generally presented in the balance sheet at cost rather that at fair market value. Long-term assets are included in the books until they are fully utilized and retired.

[chasej]

I am confused about this sentence, can someone explain it for me?
A vehicle purchased by the owner but then contributed to the business. The asset cannot be valued at the original price paid by the owner, as it is the cost to the business. 

Since the owner purchased the vehicle, the vehicle has probably gone down in value as the vehicle has been used by the owner. Therefore the value of the vehicle (capital contribution) must be recorded at the agreed value, which is an estimate of the vehicle's worth at the time of contribution. The figure is less reliable as there is no source document to verify the value, however the agreed value is far more relevant to the business as it represents the value of the vehicle, and hence the value of future economic benefit, the vehicle is to provide to the business. Essentially in this case relevance overrides reliability, no other time is that the case.

[Kuroyuki]

no other time is that the case.

hmm
Isn't always the case?  For example depreciation, it is an expense  based on two estimates (unreliable)  but we still do it because it is a relevant expense and will affect profit and decision making. 
From what I remember relevance always overrides reliability. 

[smile+energy]

Since the owner purchased the vehicle, the vehicle has probably gone down in value as the vehicle has been used by the owner. Therefore the value of the vehicle (capital contribution) must be recorded at the agreed value, which is an estimate of the vehicle's worth at the time of contribution. The figure is less reliable as there is no source document to verify the value, however the agreed value is far more relevant to the business as it represents the value of the vehicle, and hence the value of future economic benefit, the vehicle is to provide to the business. Essentially in this case relevance overrides reliability, no other time is that the case.

Thanks for your detailed explanation
I have another question: why the vehicle contributed by the owner is a cost of the business?

[smile+energy]

The going concern principle means that a business entity will continue to operate indefinitely, or at least for another twelve months.

Financial statements are prepared with the assumption that the entity will continue to exist in the future, unless otherwise stated.

The going concern assumption is the reason assets are generally presented in the balance sheet at cost rather that at fair market value. Long-term assets are included in the books until they are fully utilized and retired.

That makes sense, thanks

[chasej]

hmm
Isn't always the case?  For example depreciation, it is an expense  based on two estimates (unreliable)  but we still do it because it is a relevant expense and will affect profit and decision making. 
From what I remember relevance always overrides reliability.

Very true. I forgot about that.