List the appropriate accounting concept that relates to each of the following scenarios? Such as (the Conservatism concept, Consistency concept, etc).

1. A case of food poisoning occurred in your restaurant. The firm is being sued by a number of clients who were affected. The anticipated cost from this lawsuit is not yet ascertained although a judgment again the firm seems certain and will significantly erode the firm's liquidity and financial position in the short run. Should the firm make a disclosure of this situation at the end of the year? How may this be done?

2. The firm has traditionally depreciated its fixed assets using the straight-line method. However this year the firm is contemplating a change to the reducing balance method as this would allow for the reporting of a greater net income. What would be your initial response to this situation? Is there any justification to support this proposition?

3. The company has two motor vehicles that were acquired on hire purchase. These have not yet been fully paid for, and the supplier still has a lien on them. However, the vehicles are in use in the business. Should these motor vehicles be shown among the assets?. In line with the answer, what is an appropriate definition of the term ‘asset'?

4. Several minor expenses have been paid for, and classified under a common heading called miscellaneous expenses, as they were each of small amounts. Should the firm maintain a register of the receipts or proof of payment for these transactions? Explain some of the long term benefits of doing do?

5. While carrying out its stock taking at the end of the year, a jewelry store encountered a few reams of paper and box pens among its cache of jewelry and watches. Should these items of stationery be included in the closing stock or should they be written off as office expenses for the period?

6. The construction manager for a housing project is upset about the fact that his work is being interrupted so often by the accounting department, //as he is being asked to provide updates on work in progress. He argues that most jobs are being done on long-term contracts, and the production department usually submits a complete report at the end of each job, oftentimes up to two years. Does the construction manager have a valid point?

7. The marketing manager was elated that several clients have either enquired about our service or have promised to place substantial orders, following an advertising and promotional blitz. He is of the view that business is now very profitable based on the potential from these clients. Is there a basis to believe that business is going as well as the marketing manager assumes?

8. The managing director wished that the excellent working conditions, worker relations, and high level of staff motivation that the firm has worked so hard to achieve and maintain be reflected in the accounting statements. Can this request be granted? What alternative would you suggest?

9. Following a restructuring exercise, there has been some uncertainty amongst the employees and the shareholders about the future of the business. Many of them have been asking about the firm's long-term plans. Some shareholders are planning to sell their shares even below-market prices, while some employees are contemplating the possibility of seeking employment elsewhere. Does the firm have an obligation to appease these employees and shareholders?.

10. A new director has questioned the value of some of the assets as shown in the books. He pointed out that these assets are on the market for much higher values than what the books show, although the firm had purchased them a long time ago. An older director retorted, suggesting that the values shown in the accounts for these assets are way too high since the assets were purchased a long time ago and have become old and worn out. How would you treat the directors' observations?

11. During the year, the company was contracted as commissioned agent for Avon Cosmetics. The firm reported sales for Avon products at a value of $3m for the year and earns commission at the rate of 5%. However, at year-end, only one-half of this income was received. How much should be included as commission under the revenue for the year?

12. The cashbook had various credit entries for cash donated to charity. No other record was made for these as they were for small amounts. Is the entry in the cash books an adequate record for these transactions?

13. Prior to the preparation of the income statement, the firm took into account the significant reduction in the value of the fixed assets that were used during the year. The total of this reduction in values was included as an expense in the income statement and also posted to the provision for the depreciation account. Should the firm allow for this as an expense since no money was paid out?

14. The Top Notch Syndicate operates as a group of companies. In order to reflect an improved net profit from its car rental operation, the group's managing director has suggested that several items of expenses be moved from the books of the car rental business to the cash-rich pharmacy and gift shop operations. Is this an appropriate suggestion? How best can the firm handle this situation?

Answer rating: 100% (QA)

1 The conservatism concept would require the firm to make a disclosure of the lawsuit and the expected costs This would be done in the notes to the financial statements 2 The Conservatism concept woul... View the full answer