Tutorial Questions; - Accounting Concept

The following narratives represent situations that may confront you as an accountant. You are required to identify and explain the accounting concept or principle that would guide you in your response to each of the situations.

g. 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 potentials from these clients. Is there a basis to believe that business is going as good as the marketing manager assumes?

h. 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?

i. 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?.

j. 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 with the directors' observations?

k. During the year, the company was contracted as commissioned agent for Avon Cosmetics. The firm reported sales for Avon product 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?

l. 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?

m. 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 these reduction in values was included as expense in the income statement and also posted to the provision for depreciation account. Should the firm allow for this as an expenses since no money was paid out?

n. 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 book's 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?