accting regul and conceptual framework tute

Question 1

Tick Tock Ltd recognises revenue at the end of the production cycle but before sale has been made. The selling price as well as the quantity that can be sold, is not certain.

Answer 1

violation of revenue recognition criteria

Question 2

Cap, Caps and Hats Ltd is a medium size firm listed on the Australian and New
Zealand securities exchanges. It is currently in its third year of operations; however, it has not issued one set of financial statements. (Hint: Do not use the full disclosure principle.)

Answer 2

violation of accounting period concept

Question 3

Aunty Jane’s Toy Emporium Ltd reports only current assets and current liabilities on its statement of financial position. Property, plant and equipment and bills payable are reported as current assets and current liabilities, respectively. Property, plant and equipment is reported at the amount for which it could be sold at short notice. Liquidation of the entity is unlikely.

Answer 3

violation of going concern principle.
liquidation unlikely so should be reported at cost or revalued notice for PPE.
PPE and bills payable need to be classified as non current asset and liabilities respectively

Question 4

Surf’s Up Ltd has inventory on hand that cost $400 000. The entity reports inventory on its statement of financial position at its current net realisable value of $425 000.

Answer 4

violation of cost principle

Question 5

Brad Spit, the manager of Top Time Movies Ltd, purchased a computer for his personal use. He paid for the computer with company funds and debited the Computers account.

Answer 5

violation of accting entity concept

Question 6

Merchandise inventory with a cost of $68 000 is reported at its net realisable value of
$100 000 in the statement of financial position.

Answer 6

violation of cost principle

Question 7

The owner of Beautiful Wedding Memorabilia Pty Ltd, Ima McBride, used company
funds to purchase a computer for personal use for $2500. She recorded it as a
decrease in Cash and increase in Office Equipment.

Answer 7

violation of accting entity concept
dr drawings - Ima McBride
cr Cash

Question 8

The manager of Beautiful Wedding Memorabilia Pty Ltd wanted to make its 2017
pro t look better, so she added in memorabilia sales that occurred on the rst
two days of 2018.

Answer 8

violation of accting period concept and revenue recognition criteria

Question 9

The manager of Beautiful Wedding Memorabilia Pty Ltd wanted to make its 2017
pro t look even better, so she did not record an interest payment incurred but not due to be paid until 1 January 2018 for $15 000.

Answer 9

violation of accting period concept and expense recognition criteria

dr interest expense
cr interest payable

Question 10

Beautiful Wedding Memorabilia Pty Ltd is currently being sued by a bride as she was injured when one of the company’s wedding snow globes shattered. It is expected that the company will have to pay damages; however, the amount is currently uncertain and so the accountant has decided not to include it anywhere in the financial statements

Answer 10

violation of full disclosure principle

and definition recognition criteria for liabilities