VCE Accounting Question Thread!

[p.taaa]

Conservatism is there to account for the 'worst case scenario' so the firm can employ strategies to solve or to handle the worst possible outcome.

[smile+energy]

So for conservatism, accountants are meant to be prudent, like always on the safe side. For example, when a debt is unlikely to be recovered, like the loss is probable we write it off as a bad debt, this ensures that we are not overstating our profit for the period and the amount debtors owe us as an asset. Likewise we record our stock at cost price and only recognise the selling price after the stock has actually being sold, when the gain is certain in other words.
Accounting methods refer to how the business does accounting like using FIFO. The business shouldn't change from FIFO to any other cost assignment method, if it did reports would be inaccurate. Another example of different accounting methods is depreciation methods such as reducing balance or straight line.

Wow, your explanations are excellent!
I really understand all of them now, thanks for your help

[smile+energy]

Conservatism is there to account for the 'worst case scenario' so the firm can employ strategies to solve or to handle the worst possible outcome.

I've got it, thank you

[smile+energy]

Can anyone solve the problem for me? It is from the Cambridge workbook and I don’t understand what market value is.
Q: the owner of Frosty Fridegs believes its market value is shown in the Balance Sheet as the difference between total assets and total liabilities.
Referring to one accounting principle, explain why the market value of Frosty Fridges will not be shown as the difference between total assets and total liabilities
Thanks in advance.

[IT_Failure]

Can anyone solve the problem for me? It is from the Cambridge workbook and I don’t understand what market value is.
Q: the owner of Frosty Fridegs believes its market value is shown in the Balance Sheet as the difference between total assets and total liabilities.
Referring to one accounting principle, explain why the market value of Frosty Fridges will not be shown as the difference between total assets and total liabilities
Thanks in advance.

Market value is the current value of an item if sold now, eg a car bought for $30000 2 years ago may now have a market value of $24000.
As Assets are recorded at historical cost, the balance sheet will not show the current value of these (even a carrying value does not directly relate to market value).

However I think this question is confusing, the difference between total assets and liabilities is the Owner's Equity (as per the accounting equation), and I don't see how this relates at all to the market value of the business at a whole.

[abcdqdxD]

Accounting reports should not be used as a valuation tool. The difference between total assets and liabilities is a number - and only a number. In theory, it represents owner's equity (the value of the owner's stake in the firm) but in practice this figure is meaningless. Owner's equity differs to market value in that market value can only be discovered at the point of sale. Market value is based on supply and demand, brand loyalty among other things and is not necessarily indicated by the value of the firm's owner's equity.

[chasej]

Do we need to know analysing charts? Like do we have to know the definition of an analysing chart etc? I know they aren't account reports but was wondering whether they would ever appear on the exam etc.

(I did a lot of practice with ledgers last year so if I don't need to know AC's I'll just skip the section.)

[abcdqdxD]

Do we need to know analysing charts? Like do we have to know the definition of an analysing chart etc? I know they aren't account reports but was wondering whether they would ever appear on the exam etc.

(I did a lot of practice with ledgers last year so if I don't need to know AC's I'll just skip the section.)

Definitely won't be assessed in the exam. For SACs, technically the school could assess anything they want but it is highly unlikely you will be asked for a definition. They may get you to fill in one though. Feel free to skip the section if you feel like you have a good grasp of double entry.

[chasej]

Definitely won't be assessed in the exam. For SACs, technically the school could assess anything they want but it is highly unlikely you will be asked for a definition. They may get you to fill in one though. Feel free to skip the session if you feel like you have a good grasp of double entry.

Thanks. I'm pretty sure my teacher won't assess them so I'll just ignore them.

[smile+energy]

Market value is the current value of an item if sold now, eg a car bought for $30000 2 years ago may now have a market value of $24000.
As Assets are recorded at historical cost, the balance sheet will not show the current value of these (even a carrying value does not directly relate to market value).

However I think this question is confusing, the difference between total assets and liabilities is the Owner's Equity (as per the accounting equation), and I don't see how this relates at all to the market value of the business at a whole.

Thanks for your help
Yeah, the question made me confused too

[smile+energy]

Accounting reports should not be used as a valuation tool. The difference between total assets and liabilities is a number - and only a number. In theory, it represents owner's equity (the value of the owner's stake in the firm) but in practice this figure is meaningless. Owner's equity differs to market value in that market value can only be discovered at the point of sale. Market value is based on supply and demand, brand loyalty among other things and is not necessarily indicated by the value of the firm's owner's equity.

Really good answer, thanks

[p.taaa]

Do we need to know analysing charts? Like do we have to know the definition of an analysing chart etc? I know they aren't account reports but was wondering whether they would ever appear on the exam etc.

(I did a lot of practice with ledgers last year so if I don't need to know AC's I'll just skip the section.)

No not really, analysing charts are just there to aid learning. It helps students understand how debits and credits work because its their first time learning it. i also highly doubt that it will appear on the exam, yet it is pretty straight forward and easy to do. i've never seen an analysing chart in a practice paper/ exam
Hope this helps!

[Jason12]

What is a situation in which a vehicle would be classified as a current asset?

[abcdqdxD]

What is a situation in which a vehicle would be classified as a current asset?

If Vehicle falls under Stock Control, i.e. the firm sells cars as its main source of revenue generation.

[chasej]

If Vehicle falls under Stock Control, i.e. the firm sells cars as its main source of revenue generation.

Couldn't it also be if the vehicle is expected to be sold/decommissioned within 12 months. As wouldn't a car seller list vehicles which it intends to sell as stock in the balance sheet?