For each of the scenarios below, briefly explain which accounting concept (i.e. principle, qualitative characteristic or assumption) has been violated (or not followed):

• Part (a): Jones Company Ltd buys goods from around the world and then sells those goods in its New Zealand retail stores. As a result, many transactions are carried out in foreign currency. However, its recent annual report included no disclosure on foreign currency because management believe that investors will not understand this information.
• Part (b): The accountant for Colossus Company Ltd purchased a new stapler for $23. It has an estimated useful life of 10 years. The accountant records the purchase of the stapler as follows: $20 increase in the stapler account (an expense), $3 increase in the GST claimed account (an asset) and $23 decrease in the bank account (an asset).
• Part (c): Disclosed on Chipolata Company Ltd’s balance sheet is factory equipment used to make sausages: Last year’s value is $53,000, which is its historic cost less accumulated depreciation; and this year’s value is $78,000, which is the amount to replace it. The change of valuation methods is disclosed in the notes to the financial statements.
• Part (d): Appliances Ltd manufactures and sells appliances to appliance retailers. To increase this year’s revenue, Appliances Ltd’s management asks the retailers – who are separate accounting and legal entities – to hold additional inventory and return any unsold inventory next year. All shipments of appliances to the retailers are included in this year’s revenue.

Answer rating: 100% (QA)

Part a Answer In this scenario the management violates the principles of full disclosure I... View the full answer