Required:

(a) For each item, determine which accounting concept(s) (if any) is violated, and explain why.

(b) For each violation, indicate the correct treatment.

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After conducting an audit of the accounts of Parramatta Ltd, you discover that the following transactions and events were recorded during the current year. Parramatta Ltd uses the historical cost system. 1. The company borrowed $600 000 from a bank at an interest rate of 10% to construct a new warehouse. At the completion of construction, the loan was repaid and the following entry was made: Bank Loan Warehouse Cash at Bank Retained Earnings Patents 2. A patent with a cost of $160 000 was being amortised over its useful life of 8 years. The amortisation entry made at the end of the current year was: Maintenance Expense Cash at Bank Depreciation Expense 600 000 60 000 3. A speed-control device was installed on each of the company's 8 delivery trucks at a cost of $300 each plus GST. The transaction was recorded as follows: Accumulated Depreciation - Vehicle 20 000 Inventory Cash at Bank Income 2 400 4. At the beginning of the current year, a new vehicle was purchased for $36 000. The vehicle had an estimated useful life of 4 years. Depreciation expense for the year was recorded as follows in order to avoid reporting a loss: 660 000 2000 20 000 300 000 2400 5. Inventory was acquired at $30 per unit throughout the current year until the last purchase was made in the last month of the year. At that time the company was able to negotiate a special deal and acquired 10 000 units at $25 per unit. Ignore GST. The purchase was recorded as follows: 2000 250 000 50 000 After conducting an audit of the accounts of Parramatta Ltd, you discover that the following transactions and events were recorded during the current year. Parramatta Ltd uses the historical cost system. 1. The company borrowed $600 000 from a bank at an interest rate of 10% to construct a new warehouse. At the completion of construction, the loan was repaid and the following entry was made: Bank Loan Warehouse Cash at Bank Retained Earnings Patents 2. A patent with a cost of $160 000 was being amortised over its useful life of 8 years. The amortisation entry made at the end of the current year was: Maintenance Expense Cash at Bank Depreciation Expense 600 000 60 000 3. A speed-control device was installed on each of the company's 8 delivery trucks at a cost of $300 each plus GST. The transaction was recorded as follows: Accumulated Depreciation - Vehicle 20 000 Inventory Cash at Bank Income 2 400 4. At the beginning of the current year, a new vehicle was purchased for $36 000. The vehicle had an estimated useful life of 4 years. Depreciation expense for the year was recorded as follows in order to avoid reporting a loss: 660 000 2000 20 000 300 000 2400 5. Inventory was acquired at $30 per unit throughout the current year until the last purchase was made in the last month of the year. At that time the company was able to negotiate a special deal and acquired 10 000 units at $25 per unit. Ignore GST. The purchase was recorded as follows: 2000 250 000 50 000

Answer rating: 100% (QA)

1 Warehouse is debited instead of Interest expense which violates the matching concept and accountin... View the full answer