INSTRUCTIONS: 1. THE PAPER CONTAINS TWO SECTIONS. 2. SECTION A PROVIDE SHORT ANSWERS AND SECTION B EXPLAIN USING EXAMPLES. SECTION A ( 25 MARKS) 1. The personal assets of the owner of a company will not appear on the company's balance sheet because of which principle/guideline? 2. Which principle/guideline requires a company's balance sheet to report its land at the amount the company paid to acquire the land, even if the land could be sold today at a significantly higher amount? 3. Which principle/guideline allows a company to ignore the change in the purchasing power of the A shilling over time? 4. Which principle/guideline requires the company's financial statements to have footnotes containing information that is important to users of the financial statements? 5. Which principle/guideline justifies a company violating an accounting principle because the amounts are immaterial? 6. Which principle/guideline is associated with the assumption that the company will continue on long enough to carry out its objectives and commitments? 7. A very large corporation's financial statements have the Shilling amounts rounded to the nearest Sh.1,000. Which accounting principle/guideline justifies not reporting the amounts to the penny? 8. Accountants might recognize losses but not gains in certain situations. For example, the company might write-down the cost of inventory, but will not write-up the cost of inventory. Which principle/guideline is associated with this action? 9. Which principle/guideline directs a company to show all the expenses related to its revenues of a specified period even if the expenses were not paid in that period? 10. When the accountant has to choose between two acceptable alternatives, the accountant should select the alternative that will report less profit, less asset amount, or a greater liability amount. This is based upon which principle/guideline? 11. Public utilities' balance sheets list the plant assets before the current assets. This is acceptable under which accounting principle/guideline? 12. A large company purchases a Sh.250,000 digital camera and expenses it immediately instead of recording it as an asset and depreciating it over its useful life. This practice may be acceptable because of which principle/guideline? 13. A corporation pays its annual property tax bill of approximately sh.120,000 in one payment each December 28. During the year, the corporation's monthly income statements report Property Tax Expense of Sh.100,000. This is an example of which accounting principle/guideline? 14. A company sold merchandise of Sh.8,000 to a customer in December. The company's sales terms require the customer to pay the company in 30 days. The company's income statement reported the sale in December. This is proper under which accounting principle/guideline? 15. The creative chief executive of a corporation who is personally responsible for numerous inventions and innovations is not reported as an asset on the corporation's balance sheet. The accounting principle/guideline that prevents the corporation for reporting this person as an asset is? 16. An asset with a cost of Sh.120,000 is depreciated over its useful life of 10 years rather than expensing the entire amount when it is purchased. This complies with which principle/guideline? 17. Near the end of the current year, a company required a customer to pay Sh.200,000 as a deposit for work that is to begin in the following year. At the end of the current year the company reported the Sh.200,000 as a liability on its balance sheet. Which accounting principle/guideline prevented the company from reporting the Sh.200,000 on its income statement for the current year? 18. A retailer wishes to report its merchandise inventory on its balance sheet at its retail value. This would violate which accounting principle/guideline? 19. A company borrowed Sh.100,000 in December and will make its only payment for interest when the note comes due six months later. The total interest for the six months will be Sh.3,600. On the December income statement the accountant reported Interest Expense of Sh.600. This action was the result of which accounting principle/guideline? SECTION B The following events/transactions took place in various companies in the year ending 31st December 2019. The treatment in the books of accounts is as indicated: i) Calvin Chemical Company "faces possible expropriation (i.e. takeover) of foreign facilities and possible losses on sums owed by various customers on the verge of bankruptcy". The Company President has decided that these possibilities should not be noted on the financial statements because Calvin still hopes that these events will not take place. ii) The treasurer of Piestengle Co. wishes to prepare financial statements only during the downturns in their wine production, which occur periodically when the rhubarb crop fails. He states that it is at such times that the statements could be most easily prepared. In no event would more than 30 months pass without statements being prepared iii) Grab & Run, Inc., a fast food company, purchased assets on finance lease for Kshs.7,000,000 and paid Kshs.100,000 down payment and the rest on a15- year period remainder. The company accountant insists not to recognize such assets in the books since it's a lease. iv) The non-current assets of Daystar ltd purchased three years ago for sh. 22,000,000 have been entered in the books at sh.30,000,000 based on the current market value. v) The accountant reflected in the books that debtors owe the firm Kshs.2,150,000. This happened despite knowing that one of the debtors had been declared bankrupt two years ago. The debtor owed the business Kshs.300,000. vi) The accountant had deliberately not disclosed that the business had lost Kshs.500,000 following a robbery that took place during that year and that the money was not insured. vii) Kelvin ltd has decided to depreciate its property on cost, plant on reducing balance method and equipments on cost.The accountant has also decided to depreciate some motor vehicles on hire purchase though no final instalment has been paid. viii) Delta Ltd. Closes its books of accounts as indicated above,in the course of your audit you discover the following: a) Rent of sh.225,000 paid covers the period to 31st march 2020 as shown in the income statement presented by the company accountant. b) Commission receivable of sh.90,000 out of sh.120,000 was only covering up to the end of September 2019,The company accountant is waiting for the whole amount to be received so as to recognize it. c) Advertisement for the year is sh.84000,The accountant has recognized in the income statement only 70,000 that was paid as per the receipts presented. Required: In each case : A) State the Principle violated with reasons. ( 15 marks) B) Suggest the effect it will have on financial statements. ( 10 marks) C) Point out the quality of good accounting information that will be compromised. (10 marks)