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Random Accounting Revision Questions

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costargh:
This thread is for little "test yourself" style questions.

Explain with reference to a qualitative characteristic of accounting, why Traditional Interiors should conduct a physical stocktake despite having perpetual stock records available. (3 marks)- Exambusters

ben4386:
Heres a longish answer

Relevance-, Although the business has perpetual stock records they may not show a true indication of stock on hand. The business may have more stock on hand from an oversupply by a supplier indicating a stock gain, or less stock on hand perhaps due to theft or damage. Traditional interiors should therefore conduct a physical stocktake to check the perpetual records accuracy and to detect a stock loss or stock gain. The business would then have an accurate figure for stock and be able to include a stock gain revenue or stock loss expense in the profit and loss statement which will be of use to the businessl for decision making.

elaine:
lol I thought it may have been reliability.
man i suck

jamesdrv:
Why is there a conflict between different qualitative characteristics when recognizing depreciation?

Business Pty Ltd want to buy a vehicle valued at $50,000 (GST Exclusive). They pay a deposit of 10%, and pay the rest the following week. How would this appear in the cash flow statement (assume all transactions are for cash)?

Business Pty Ltd contracts with another business to supply 500 chairs for $100 each at some point before the end of the month. How would this affect the accounting equation?

costargh:
Edit: Answer for first question

The answer is most certainly relevance and for the reasons stated by Ben.

This is sorta like a trick question because for many people, including myself you think that by doing a physical stock take you will be double checking on the stock cards and therefore making the stock control value more reliable.

But you have to remember that reliability refers to having accounting reports free from bias and having a source document available to verify the accuracy/authenticity of the reports.

It is therefore relevance because by conducting a physical stocktake (thereby identifying any stock losses or gains) we are including all information in the accounting reports (profit and loss statement) that could aid decision making. The inclusion of all information that affects profit allows the owner to make decisions with the most accurate information possible, therefore increasing the chances of making a decision that could achieve the best outcome.

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