Brushing up on some theory ;)

[Aqualim]

As the title states, I'm going over some theory and was wondering what kind of definitions you guys would give when given these questions;

Referring to one Qualitative Characteristic, explain why the asset must be shown in the Balance sheet at its carrying value
AND
Referring to one accounting principle, eplxina why it is necessary to depreciate non-current assets

[naved_s9994]

2. reliability...
   if it were qualitive characteristic, than relevance would've overwrite it...
 

[Aqualim]

2. reliability...
   if it were qualitive characteristic, than relevance would've overwrite it...
 

Reliability is a qualitative characteristic.... it says principle

[naved_s9994]

Yea, I misread the Q! - and mental blank.
So yep if QC, it would be reliability, but infact relevance..as by depreciating we are able to create more accurate
information, for decision making, etc. 

As it is, a principle..Probably reporting period.

[Yitzi_K]

As the title states, I'm going over some theory and was wondering what kind of definitions you guys would give when given these questions;

Referring to one Qualitative Characteristic, explain why the asset must be shown in the Balance sheet at its carrying value
AND
Referring to one accounting principle, eplxina why it is necessary to depreciate non-current assets

For the first one I'd say relevance, the relevant value for decision making (and hence the one that must be recorded in the reports) is the current or carrying value.

For the second one, it's the reporting period principle. Since the life of the business is split into reporting periods, it's necessary to write off a part of the non-current asset each period. As the non-current asset won't last forever, eventually its cost must be written off as an expense. We do this by allocating a part of the total to each period during which it's used (as we can't lump it all at the end, that would give inaccurate profit/loss), which is the depreciation amount for each period.

Hope I was clear on that last one.

[nbalakers24]

second one. going concern as well as reporting period

[Yitzi_K]

second one. going concern as well as reporting period

Well reporting period is somewhat of an extension of going concern, so yeh

[Akirus]

The first one is reliability. I would answer it like this:

Referring to one Qualitative Characteristic, explain why the asset must be shown in the Balance sheet at its carrying value.

1. Relevance (I)

2. All financial information relevant to making decisions as to the allocation of scarce resources should be included in accounting reports. (D)

3. The carrying value has predictive relevance as represents the unallocated cost of the asset, and so it should be reported as such in the balance sheet. (L)

You could go on further but that's the general idea.

Second one is reporting period, like this:

Referring to one accounting principle, explain why it is necessary to depreciate non-current assets.

1. Reporting period (I)

2. The life of the business is divided into arbitrary reporting periods. (D)

3. To accurately calculate profit, revenues earned in the period must be matched with expenses incurred. The cost of non-current assets must therefore be allocated across their useful life. (L)

Again, you could write more but that's the general idea. You want to mention the arbitrary reporting periods and the matching rev/exps for these types of questions (typically BDAs).

[nbalakers24]

Referring to one Qualitative Characteristic, explain why the asset must be shown in the Balance sheet at its carrying value

relevance not reliability
its recorded as carrying value (hc minus accum dep. [relevance - depn made of estimates]) not historical cost (reliability [ source documents])

[Akirus]

Sorry, you're right, I misread the question as historical cost.

[TyErd]

Sorry Aqualim but I didn't think it was necessary to make a new topic,
1. why isn't GST included in the calculation of depreciation? 
2.why isnt insurance included in the cost of a non current asset?
3. why does the P/L statement indentify gross profit and adjusted gross profit seperately?

[nbalakers24]

1. GST is seperate, used to caculate how much owed to ATO
2. its an expense refer to the definition of a expesne
3. gross profit identfies the margin and adjusted gross profit identfies the management of stock that is stock loss/gains etc etc

[TyErd]

Also:

4. Explain why balance day adjustments are made in the General Journal and not the Special Journals.
5. What is 1 advantage and 1 disadvantage of paying rent in advance?
6. With reference to a qualitative characteristic, explain why it is important to correct entries.

[Buharrr]

4. BDA's are made in the General Journal because they do not involve any cash or credit transactions, they simply adjust the ledgers.
5. an advantage of paying rent in advance is that one does not have to worry about remembering to pay for the rent (not sure about this, made it up) 
a disadvantage is that an outlay of cash has been paid before the entire expense has been consumed, which might lead indirectly to cash flow problems. (i am certain about this)
6. Relevance dictates correcting entries, so that the amount is corrected to the relevant figures that will be useful for decision making. 

[TyErd]

Difference between cash and profit