VCE Accounting Question Thread!

[TimmyC]

If the computer has been used then it should be valued at its agreed value

yea it is, thanks

[sin0001]

Jess owns and operates a small shop in Fountain Gate selling clothing and jewellery  When Jess takes home clothing for personal use, she claims that this clothing is an expense of the business. Referring to one accounting principle, explain why the clothing shouldn't be treated as a business expense.
I know that the answer might be something to do with 'The Entity Principle', but I cannot explain it :/

[nacho]

use IDL for accounting theory questions.
Identify, define, link back to q.

(I)Entity principle - (D)The business must be recognised as a separate entity to the owner, and transactions must be recorded on that basis. (L)As Jess takes clothing home for personal use, this is not a business expense and must be recognised as drawings (-OE) by Jess, the owner.

[sin0001]

Thanks that cleared it up!

[sin0001]

One more:
"Narre Warren Pizza have just revalued their non-current assets upwards by 4% to reflect the rate of inflation. Referring to one accounting principle, explain why the non-current assets should not be revalued"
Is this something to do with the Consistency principle??

[abcdqd]

One more:
"Narre Warren Pizza have just revalued their non-current assets upwards by 4% to reflect the rate of inflation. Referring to one accounting principle, explain why the non-current assets should not be revalued"
Is this something to do with the Consistency principle??

hizt0ric4l c057

[nacho]

interesting, i think it could be either historical cost or consistency:
(I)Consistency:
(D)Accounting methods should be applied in a consistent manner to ensure that reports are comparable between periods.
(L)As the non-current assets were previously valued at their historical cost, only this value may be applied so as to maintain consistent records.

I've actually always sucked at linking, so anyone feel free to correct me.
Also a good exercise for these theory q's is to see if you can answer them with a Qualitative characteristic instead of principle (you'll find many of them link)

Try it in this case, see if you can tell me which qualitative char would apply to this question

[abcdqd]

consistency refers to accounting methods, recording things at historical cost isn't a method, it's a principle. if you interpreted consistency in this way, it could be used for literally every theory answer. so i doubt you would get any marks for stating consistency

[sin0001]

Thanks again!
Well, it could be :
Comparability- as records should be comparable overtime, through the use of consistent accounting methods. In this case, it is the price of the NCA that is lacking consistency
Reliability- The NCA must be recorded at their original price, as this value is verifiable through reference to source docs, and is therefore free of any guesswork

[nacho]

consistency refers to accounting methods, recording things at historical cost isn't a method, it's a principle. if you interpreted consistency in this way, it could be used for literally every theory answer. so i doubt you would get any marks for stating consistency

I think that both should be accepted - consitency is still regarded as a principle. HC is a safer answer.
I would be interested in seeing what a teacher had to say on this, or a third party.

and yes, your QC's are both correct

[sin0001]

In the accounting exam, will the more specific accounting principle (HC in this case) always be correct, regardless of how well you explain other accounting principles

[nacho]

In the accounting exam, will the more specific accounting principle (HC in this case) always be correct, regardless of how well you explain other accounting principles

there are instances where more than one answer in correct, in which case you will receive marks for stating either.
go with the one which may be safer, or that you feel more confident with.
However always be wary of tricks, VCAA is notorious!
for example there was a question in the 2011 exam (not spoiling it) which seemed really straightforward, however 90% of the state got 0 marks out of 2.

[abcdqdxD]

interesting, i think it could be either historical cost or consistency:
(I)Consistency:
(D)Accounting methods should be applied in a consistent manner to ensure that reports are comparable between periods.
(L)As the non-current assets were previously valued at their historical cost, only this value may be applied so as to maintain consistent records.

I've actually always sucked at linking, so anyone feel free to correct me.
Also a good exercise for these theory q's is to see if you can answer them with a Qualitative characteristic instead of principle (you'll find many of them link)

Try it in this case, see if you can tell me which qualitative char would apply to this question

In the scope of VCE, I would just stick with Historical Cost for this one because you can't go wrong. Whether consistency will be accepted is debatable.

One more:
"Narre Warren Pizza have just revalued their non-current assets upwards by 4% to reflect the rate of inflation. Referring to one accounting principle, explain why the non-current assets should not be revalued"
Is this something to do with the Consistency principle??

Others have touched on why its Historical cost. But I'll add this:

It's important to understand that the Balance Sheet is NOT a valuation tool. Assets should be recorded at their historical cost, not their market value.

[dreambig]

Why is stock used for advertising classified as an expense whereas drawings isnt? Is it because advertising is fo business purposes or?

[abcdqdxD]

Why is stock used for advertising classified as an expense whereas drawings isnt? Is it because advertising is fo business purposes or?

Definition of an expense: an outflow of economic benefit decreasing assets (or increasing liabilities), decreasing Owner's equity, except for drawings.

Using stock for advertising fits under that definition because:

1) it is an outflow of economic decreasing assets (in this case stock control decreases)
2) decreases owner's equity (as a result of an increase in advertising expense, decreasing net profit)
3) it is is not drawings

So hence it is an expense