(a) Assume that the Business/Accounting Entity Concept did not exist, how would this impact you as a user of the financial statements? Discuss.
(5 marks)
(b) ABC Trading purchased a large quantity of cloth from a wholesaler who is closing down. The business paid $5,500 although the actual value of the materials is $11,000. The business recorded the purchase as $5,500 instead of $11,000. Identify the accounting concept/principle that has been complied with or violated. Explain your answers. (5 marks)
(a) If the business/XXXXXX entity concept did not exist, user could not be sure how much of the information on the financial statements were the result from operations of the XXXXX and how much were the result of personal transactions of the XXXX. The user would not be able to determine accurately the performance(whether the business made XXXXXXXX or XXXXXXX) and the financial position(amount of XXXXX, XXXXX and owner’s equity) of the business.
(b)The Historical Cost principle has been complied with. The Cost principle states that all assets XXXXXXXXXXXXXXXXXXX i.e. to be recorded at their original cost or XXXXXXXXXX paid. Therefore, since the cost of the material to ABC Trading is XXXXX, the business is correct to record the purchase as $5,500. The value of $11,000 is not a reliable amount as it is not the transacted value.
i swear that my INFA teacher is the funniest person i ever met
LOL!
whats with the XXXX?
how are we suppose to know what the XXX mean?!
and its all the important part that are filled with XXXX
darryl said that all the XXXX are her wheels !
LOL!(inside joke)
i dont want to be sue for defamation :P
business law came into good use :D
