State and explain two Accounting Principles that have been breached int he following situation:
a) Stock is shown in the Balance Sheet at the marked up retail value.
Historical Cost has been breached, as all transactions must be recorded at its original purchase price, as the value is verifiable by source documents. Because the stock is at is marked up retail value, it could be biased by the owner's opinion.
Conservatism has also been breached, because the owner is recording revenue when it hasn't been gained, therefore assets are being overstated.
State and explain ONE Accounting Principles that have been breached int he following situation:
a) Amber owns a bicycle hire service and her husband Jimmy owns a lawn -mowing business. To cut down on paper work they decide to keep a combined set of records.
Entity Principle has been breached, as the business must be kept separate from the owner and other entities, and its records should be kept on that basis. Amber and her husband Jimmy are separate entities.
b) Stephanie commenced a dress-design project that will last for two years. She decides to calculate profit at the end of that period.
Reporting Period has been breached, as the life of the business must be divided into periods of time to allow reports to be prepared, and the accounting records should reflect the period in which a transaction occurs. Reporting period has been breached because the reports have to be prepared at least yearly.
Using examples outline the difference between Non Current Assets and Non Current Liabilities
Equipment is an example of a non current asset because it's a resource controlled by the entity, which results in an outflow of economic benefits for more than 12 months. The remainder of a Loan is a non current liability, because4 it has the present obligation arising from past events, the settlement of which is expected to result in an outflow of economic benefits in the next 12 months.
How are creditors classified in the Balance Sheet? Justify your answer
Creditors are classified as current liabilities, because they have the present obligations arising from past events, the setllement of which is expected to result in an outflow of economic benefits within 12 months.
How are debtors classified in the Balance Sheet? Justify your answer
Debtors are classified as current assets in the balance sheet because it is a resource controlled by the entity that results in an inflow of economic benefits which is expected to flow to the entity within 12 months.
Thanks!
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