VCE Stuff > VCE Accounting

yo it's the neap again

(1/1)

elaine:
tricky theory questions (well for me anyway)

what would your answer be?
gah i got them all wrong








thanks again

jamesdrv:
8.5: Is the answer Historical Cost? Assets should be reported in the balance sheet at their historical cost as that value can be substantiated by source documents. Market value != historical cost (eg. land purchased 50 years ago should be reported at that purchase price, according to Historical Cost).

8.6: Weird...this question is usually asked with reference to a qualitative characteristic, not an accounting principle (that was a question on last years unit 3 exam). I guess it could be Going Concern as the assumption that the life of the business is continuous/indefinite means we should classify assets and liabilities in such a way.

What are the correct answers?

AppleXY:
Yeah, I would have to agree.

a. Historical Cost, as HC Realisable  (market ) Value

b.) Going concern, by assuming that the life of the business is indefinite, we can then group assets in to the most liquidateable (current assets, consumed within 12 months) to the revenue-earning assets (non-current assets, consumed gradually over an extended period of time). Same goes with liabilities.

elaine:
yeah you smarties are right :)

what i don't understand is why isn't 8.6 Consistency? It says that it is 'common practice', so therefore in keeping reports consistent in the way they are presented will ensure reports are comparable. hmm.

jamesdrv:

--- Quote from: elaine98 on May 20, 2008, 10:07:18 pm ---yeah you smarties are right :)

what i don't understand is why isn't 8.6 Consistency? It says that it is 'common practice', so therefore in keeping reports consistent in the way they are presented will ensure reports are comparable. hmm.

--- End quote ---

Consistency refers to maintaining practices from one period to the next. For example, you wouldn't calculate depreciation in one way one year, and then calculate it differently the next year, because then comparison would be worthless. Or, you wouldn't present the reports in one way this period and in a different way the next period. The question is essentially asking why do we classify assets and liabilities in the first place? The Going Concern principle is not the only reason for doing so, and is definitely not the most important reason, which makes this question pretty stupid.

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