Accounting principles. Explanation

Transcription

1 Chpter 1 The Role of Aounting Solutions to exerises Exerise 1.1 s Entity The owner nd the usiness re onsidered to e seprte ounting entities, nd their reords should e kept on this sis. The orthodontist s fees re n expense of the owner, not n expense of the usiness, nd should e reorded s Drwings Consisteny The sme ounting methods should e pplied from one period to the next so tht reports n e ompred etween periods. The owner will e unle to identify ny hnges in repir or vehile expenses. Monetry Unit Trnstions should e reorded in ommon unit of mesurement in Austrli, this mens Austrlin dollrs. d Reporting Period The life of the usiness is divided into ritrry periods to llow for reports to e prepred. The trnstion should e reorded s revenue when it ws erned (when the goods were supplied), i.e. in Deemer e Historil Cost Trnstions should e reorded t their originl purhse prie s this vlue is verifile y soure doument. The revlution is sujet to sujetivity, nd not verifile. Simmons, Hrdy 1 Cmridge University Press 2012

2 Chpter 1 The Role of Aounting Solutions to exerises f Going Conern The life of the usiness is ssumed to e ontinuous, nd its reords re kept on this sis. The mortgge should e reported s non-urrent liility, s it is ssumed tht the usiness will still e operting 10 yers into the future. g Reporting Period The life of the usiness is divided into ritrry periods to llow for reports to e prepred. Aording to tx requirements, reports must e prepred t lest yerly. Exerise 1.2 s nd qulittive hrteristis Entity The usiness is ssumed to e n ounting entity seprte from the owner nd other usinesses, nd its reords should e kept on this sis. The holidy is n expense of the owner, not n expense of the usiness. The reports will not ontin ll the informtion tht is useful for deision-mking euse they will not show the owner s Drwings. Simmons, Hrdy 2 Cmridge University Press 2012

3 Chpter 1 The Role of Aounting Solutions to exerises Exerise 1.3 s nd qulittive hrteristis Historil Cost Stok should e vlued t its originl purhse prie s this vlue is verifile y soure doument. OR Conservtism Revenues should e reognised only when ertin so tht ssets nd revenues re not overstted. There is no gurntee tht the stok will e sold for its selling prie, so using the selling prie would reognise the revenue efore it is ertin nd overstte sles revenue nd the vlue of the stok (n sset). Beuse the selling prie is not verifile y referene to soure doument, it will men the informtion in the reports is not free from is. Exerise 1.4 s nd qulittive hrteristis Conservtism Losses should e reognised when prole so tht expenses nd liilities re not understted. The dmges should e reognised in order to present to the owner prudent or utious piture of the firm s finnil position. Qulittive hrteristi Justifition Relevne The reports should inlude ll informtion tht is useful for deision-mking. The prole expense of dmges my ffet deisions the owner mkes out oth profit nd ville sh. Simmons, Hrdy 3 Cmridge University Press 2012

4 Chpter 1 The Role of Aounting Solutions to exerises Exerise 1.5 s nd qulittive hrteristis Consisteny The sme ounting methods should e pplied from one period to the next so tht reports n e ompred etween periods. Qulittive hrteristi Comprility Reports should e omprle over time, nd etween different ompnies through the use of onsistent ounting proedures. Exerise 1.6 s, qulittive hrteristis nd elements of reports Reporting Period The life of the usiness is divided into ritrry periods to llow for reports to e prepred. The revenue ws not erned in the Reporting Period in whih it ws reeived (2014) ut when the goods re provided in 2015 ( different Reporting Period). Qulittive hrteristi Relevne The reports will inlude some informtion tht is not useful for deision-mking out profit for the urrent Reporting Period (2014; i.e. the sh tht hs een reeived will not e erned until the next Reporting Period (2015). The inflow of eonomi enefits (sh) inreses ssets, ut lso inreses liilities (the goods re still owed to the ustomer); s result there is no inrese in owner s equity. Simmons, Hrdy 4 Cmridge University Press 2012

5 Chpter 1 The Role of Aounting Solutions to exerises Exerise 1.7 s nd qulittive hrteristis Qulittive hrteristi Understndility Reports should e presented in mnner tht mkes it redily understndle y users. As the workers hve no ounting knowledge, the reports will not fulfil their funtion of providing informtion. Tehnique Use of grphs; plin lnguge reports; explntory notes/presenttion sessions Exerise 1.8 s nd qulittive hrteristis Historil Cost Assets nd liilities will e reported in the Blne Sheet t their originl purhse prie s these vlues re verifile y soure doument. The mrket vlue, on the other hn,d represents wht potentil uyer is prepred to py for the ssets. Exerise 1.9 s, qulittive hrteristis nd elements of reports As non-urrent sset s it is resoure ontrolled y the usiness s result of pst events from whih future eonomi enefit is expeted to flow to the usiness for more thn 12 months. Historil Cost The shelving should e vlued t $12 500, s this is the greed vlue of the sset t the time it is ontriuted to Mx s Mrt. This greed vlue eomes the Historil Cost for Mx s Mrt. (The $ ws pid y different entity.) Simmons, Hrdy 5 Cmridge University Press 2012

6 Chpter 1 The Role of Aounting Solutions to exerises Qulittive hrteristi Reliility There is no gurntee tht the shelving n e sold for its resle vlue, so using this figure will men tht the informtion in the reports is not free from is. Exerise 1.10 Elements of the reports Detors Item Report/lssifition Definition Blne Sheet/ Asset resoure ontrolled y the usiness tht is expeted to provide future eonomi enefit (when the sh is reeived) Lon prinipl Interest on lon d Stok loss e Csh sles f Wges inurred g Wges owing h Disount revenue Blne Sheet/ Liility Sttement/ Expense Sttement/ Expense Sttement/ Revenue Sttement/ Expense Blne Sheet/Liility Sttement/ Revenue present oligtion tht is expeted to result in n outflow of eonomi enefits sometime in the future (when the lon is repid) n outflow of n eonomi enefit in the form of derese in ssets (Bnk), whih leds to derese in owner s equity n outflow of n eonomi enefit in the form of derese in ssets (Stok,) whih leds to derese in owner s equity n inflow of n eonomi enefit in the form of n inrese in ssets (Bnk), whih leds to n inrese in owner s equity n outflow of n eonomi enefit in the form of derese in ssets (Bnk,) whih leds to derese in owner s equity present oligtion tht is expeted to result in n outflow of eonomi enefits sometime in the future (when the employees re pid) sving in n outflow of eonomi enefits in the form of redution in liility (Creditors), whih leds to n inrese in owner s equity. Simmons, Hrdy 6 Cmridge University Press 2012

7 Chpter 1 The Role of Aounting Solutions to exerises Exerise 1.11 Elements of the reports Both represent n eonomi enefit, ut wheres n sset represents resoure ontrolled y the entity tht is expeted to provide future eonomi enefit, n expense represents n outflow or onsumption of n eonomi enefit. If the vehile ws purhsed s stok nd ws intended for resle, it would e resoure ontrolled y the usiness tht is expeted to provide future eonomi enefit in the next 12 months (when it is sold). If the vehile ws purhsed for use within the usiness, it would e resoure ontrolled y the usiness tht is expeted to provide future eonomi enefit for more thn 12 months. d OR If the vehile ws sold, it would rete n expense lled Cost of Sles relting to the outflow of n eonomi enefit in the form of derese in ssets (Stok), leding to derese in owner s equity. Stok loss/depreition Exerise 1.12 Goodwill Disussion The loyl lientele (goodwill) represents resoure ontrolled y the usiness tht is expeted to provide future eonomi enefit (i.e. further sles). However, it is diffiult to vlue this goodwill in ny mnner tht is Relile (urte/free from is) so it should not e reognised s n sset. Simmons, Hrdy 7 Cmridge University Press 2012