Question 2 (30 marks)

Flamingo Limited is a dancing school providing a wide variety of dance classes for all ages. The financial statements are prepared annually on 31 December. The Companys 2020 financial statements were issued on 31 March 2021.

A new accounting clerk, May was hired by Flamingo Limited on 1 January 2020. When the accountant, Yan, reviewed the financial statements prepared by May, she discovered the following improper accounting treatments.

1. (1) The Company provides ballet dance classes for a primary school in January 2021. The tuition fee is $32,000 and the whole amount was received on 30 December 2020. May recorded the total amount received as revenue earned on 30 December 2020.

2. (2) The Company did not report a legal case filed against the Company for possible infringement of copyright for $200,000 during the year in the notes to the financial statements. The hearing date is fixed on June 1, 2021.

3. (3) On 31 December, 2020, the Company purchased a van at cost of $200,000. The list price of the van was $250,000. May has recorded the van at the value of $250,000 and a gain of $50,000 was included in the income statement.

4. (4) The Owner of the Company has employed a web designer to design a personal website for him. May included the web designers salary of $70,000 in the income statement of the Company.

5. (5) On 1 January 2020, the Company purchased an audio equipment with cost of $ 300,000. May recorded it as an asset and made no depreciation adjustment as she found that the audio equipment is still in a very good condition at 31 December 2020. (Note: The fixed assets of the Company were depreciated by straight-line method over an estimated useful life of 5 years.)

6. (6) On 1 January 2020, a calculator costing $120 was purchased for office use. May recorded the cost of calculator as asset and depreciated by straight-line method with the estimated useful life of 5 years.

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BHMH2101 2020/21 S2 Assignment 1

Required:

For each of the situations describe above,

1. (a) identify the relevant accounting principle/concept that has been violated/departed. (12 marks)