Part II The following events occurred in Beauty Forever Company in January 2020: (1) A customer...

 

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Part II The following events occurred in Beauty Forever Company in January 2020: (1) A customer has purchased $8,100 ten whitening treatment vouchers for the service to be used in next few months. The total amount received was recorded as revenue by the company. (2) On 1 January 2020, Beauty Forever Company has purchased 1-year medical insurance policy for its staff amounting to $120,000, paid by cash. The total amount was recorded as insurance expense. (3) On 1 January 2020, the owner of Beauty Forever Company purchased a car of $30,000 in cash for his personal use but reported it as the Company's transaction. The Company also recorded the monthly depreciation adjusting entry for the car with a useful life of 5 years on 31 January 2020. (4) On 31 January 2020, the accountant adjusted the balance of equipment to market value at $244,800 because of inflation and recorded a gain of $4,800. Required: For each of the situations describe above, (a) identify the relevant accounting principle that has been violated. (12 marks) (b) indicate the effect (with dollar amount) of the above error on each of the financial statement elements at the end of January 2020 described in the column headings in the table below. Use the following symbols: O = overstated, U = understated and NE = no effect. e.g. (1) U $1000 Assets NE Liabilities U$1000 Equity (12 marks) Part II The following events occurred in Beauty Forever Company in January 2020: (1) A customer has purchased $8,100 ten whitening treatment vouchers for the service to be used in next few months. The total amount received was recorded as revenue by the company. (2) On 1 January 2020, Beauty Forever Company has purchased 1-year medical insurance policy for its staff amounting to $120,000, paid by cash. The total amount was recorded as insurance expense. (3) On 1 January 2020, the owner of Beauty Forever Company purchased a car of $30,000 in cash for his personal use but reported it as the Company's transaction. The Company also recorded the monthly depreciation adjusting entry for the car with a useful life of 5 years on 31 January 2020. (4) On 31 January 2020, the accountant adjusted the balance of equipment to market value at $244,800 because of inflation and recorded a gain of $4,800. Required: For each of the situations describe above, (a) identify the relevant accounting principle that has been violated. (12 marks) (b) indicate the effect (with dollar amount) of the above error on each of the financial statement elements at the end of January 2020 described in the column headings in the table below. Use the following symbols: O = overstated, U = understated and NE = no effect. e.g. (1) U $1000 Assets NE Liabilities U$1000 Equity (12 marks)

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1 According to revenue recognition criteria the revenue should be recognised only after the services ... View the full answer