VCE Accounting Question Thread!

[nacho]

on Cambridge exercise 9.5... with the Profit and Loss Statement why was "buying expenses" listed under COGS?
I know COGS are expenses incurred in order to get stock in condition and position ready for sale but what exactly are "buying expenses" ?

I remember that exercise, the only reason I put buying expenses under COGS was because i'd never seen it before as a regular expense.
But I'm also assuming, that if you must pay an extra amount to purchase that stock ( a buying expense ), then it is techincally an expense which is necessary to get the stock ready for sale.
I know I can't provide a definitive answer, so sorry, the logical one will have to do!

[sam.utute]

on Cambridge exercise 9.5... with the Profit and Loss Statement why was "buying expenses" listed under COGS?
I know COGS are expenses incurred in order to get stock in condition and position ready for sale but what exactly are "buying expenses" ?

I remember that exercise, the only reason I put buying expenses under COGS was because i'd never seen it before as a regular expense.
But I'm also assuming, that if you must pay an extra amount to purchase that stock ( a buying expense ), then it is techincally an expense which is necessary to get the stock ready for sale.
I know I can't provide a definitive answer, so sorry, the logical one will have to do!

That pretty much sums it up. Buying expenses fit the definition of COGS (i.e. they are incurred in order to bring the stock into a location etc. etc.). The word "buying" refers to the actual purchase of the stock, which is usually collated under COS, but in this case, can be separated from the actual cost price of the stock. An example could be Agents Commission or a Credit Payment Surcharge.

[Hodgeyhodgey]

What is an accounting standard? What is the purpose of accounting standards?

I know this seems a basic question, but I'm finding the neville box textbook lacking a little with the theory. In this part, it just craps on about the history of creating the standards, with very little detail into what they are..

[mba]

Accounting Standards set out how accounting reports are prepared and maintained.

One of the purposes of accounting standards is to ensure consistent methods of preparing reports are used so comparisons can be made between the performance of differing business entities.

You can get an idea of what the standards entitle by going to this website ... http://www.aasb.com.au/Pronouncements/Current-standards.aspx.

MBA

[Hodgeyhodgey]

Thanks for the help turns out it had more details later on in the book..

Another query (regarding DEA),
"Outline how the rules of debit and credit can be determined from the accounting equation"

I know this is referring to how each transaction as 2< effects on the balance sheet, hence it always remains balanced, but I just can't seem to find the right wording to relate back to the question. Help?

[hello_kitty]

Could anyone clarify what the role of a ledger account is?

Is it that it shows all the transactions that affect a particular item??

Thanks

[nacho]

Could anyone clarify what the role of a ledger account is?

Is it that it shows all the transactions that affect a particular item??

Thanks

roughly, the role of a ledger account is to create an accounting system which allows you to make changes to the accounting equation, without having to re-write it every time.
Once you do a few ledger accounts yourself (chapter 3 i believe) you'll see how it works!

[hello_kitty]

Thanks Nacho!

I was also wondering if anyone could create some questions that need me to identify why it's the Conservatism Principe??

These are some examples from the book that I have trouble explaining when it is Conservatism:
- In October 2008, Mark Larkin, the owner of Larkin Lighting, decided that the firm's stock should be valued at its selling price rather than its cost price because, according to Mark, 'That's what it is actually worth'

a) Referring to two Accounting principle, explains why the stock must be valued at its cost price.
I know that one is the Historical Cost Principle, but the other one is suppose to be Conservatism but I'm unsure why???


- Erica Carr's business has been sued for false advertising, and her solicitor has indicated that she is likely to lose the forthcoming court case. Damages have been estimated at $55 000, but Erica has not reported the damages in the Profit and Loss statement.

a) Referring to one accounting principle, explain why Erica should disclose the damages in the Profit and Loss Statement..

Again its Conservatism but why??


So if anyone has any practice questions of determining Conservatism would be great !!

Thanks!

[eeps]

My answers would be:

a) It's Conservatism because if stock is valued at its' selling price, you're recognising the gain before it's certain. There is no guarantee that the stock will be sold at its' selling price, hence stock should be valued at its' cost price. By doing so, this satisfies the Historical Cost principle as well.

b) If Erica doesn't report the damages in the P/L Statement this would breach the Conservatism principle. The loss should be recorded in the report, otherwise it doesn't give Erica (the owner) a true indication of the business' financial position. By reporting the loss, this satisfies the Conservatism principle; that losses should be recorded when probable.

[hello_kitty]

Thanks so much!
that clarified it for me

Could you by any chance create a similar question?? relating to Conservatism??
Or have any in other texts??


THanks again!

[eeps]

Sorry, I don't. I did Accounting last year and as far as those Conservatism questions go, that's really as much as VCAA can test for those questions. They don't get that much harder in Unit 3. If you have Cambridge Checkpoints (doesn't matter what year); I think that there are questions from past VCAA exams relating to topics covered in Units 3 and 4 in it. Alternatively, try the other stickied thread called "Accounting Tips"; I think I might have posted some practice SACs on one of those pages (Cambridge SACs), have a read and look at that - some material there you may find useful. Try more questions from your textbook? I presume there are exercises relating to Conservatism in most of the textbooks. I sold all my Accounting books last year! Sorry! I can't remember any off the top of my head.

[Furbob]

not to mention that when you study about Bad Debts the Conservatism principle will be relevant

[nacho]

- Erica Carr's business has been sued for false advertising, and her solicitor has indicated that she is likely to lose the forthcoming court case. Damages have been estimated at $55 000, but Erica has not reported the damages in the Profit and Loss statement.
a) Referring to one accounting principle, explain why Erica should disclose the damages in the Profit and Loss Statement..
Again its Conservatism but why??
Thanks!

Okay, well put simply - it fits the definiton of the conservatism principle - which is: "Losses should be reported when ever there is a chance [or as the book says, "when probable"] and gains only when certain..."
In this scenario she is likely to lose the case, therefore the loss is probable and must be reported.
In a way, the conservatism principle makes it so you know what your profits will be at their worst, hope that helps.

[david10d]

You have to be very careful with the conservatism principle. If the definition is worded incorrectly (which happens often) the teacher is inclined to take a mark off for not giving the proper definition. This happened to me during practice exams and SACs. Your safest bet is using, "Losses should be reported when probable and gains only when certain..." as this is used by VCAA.

During Unit 4 the principle comes up quite frequently so it's best if you perfect it early.

[hello_kitty]

so do you all recommend me just to always include the 'LOsses should be reported when probable and gains when certain, so that libailities and expenses are not understated, and assets and revenues are not overstated?'
and the if possible incorporate what the question is asking??