Concepts- Merit Exellance

Question 1

Jo imported two piano’s to sell in Jo’s music store . They cost $1000 USD each. Explain how the monetary concept is applied to this transaction ?

Answer 1

Financial transactions must be measured in a common currency such as NZ$ for New Zealand businesses. ( A-Grade )
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Jo’s music store would convert the two piano’s purchased at $1000 USD each to New Zealand Currency ( M/E- Grand )

Question 2

Looking at the Income statement of Jo’s Music Store how is the Monterey concept applied ?

Answer 2

Financial transactions must be measured in a common currency such as NZ$ for New Zealand businesses. ( A- Grade )
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Only financial transactions are shown in $ amount this seen by the dollar signs on each columns of report. of Jo’s Music Store ( M/E- Grade )

Question 3

Jo’s Music Store financial reports are divided into accounting periods. Explain to Jo how the period how the reporting concept is applied to her bossiness ?

Answer 3

• The lifetime of the Jo’s Music Store is divided into nominated time periods of equal length, usually a year. ( A- Grade )
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• This allows Jo and Users to make comparisons of financial performance and position of a Jo’s Music from one period to another. Jo can identify financial trends to assist in decision-making. ( M- Grade )
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  Eg. Jo’s business Is there enough profit to expand to business
  ( E- Grade )

Question 4

Jo’s Music Store has purchased a computer for $5000 Jo has had the computer revalued $1000 as it is now quite old. What value will he shown in the financial statement ?

Answer 4

The financial reports are prepared on the assumption that the life of the business is expected to continue to operate into the foreseeable future. ( A- Grade )
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Hence assets of Jo’s Music Store, particularly Plant Property and Equipment, are valued at historical cost in the Statement of Financial Position. ( A- Grade )
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Users will know for certain what they were purchased for. They can make their own decisions on their market value. The Computer will be recorded at its historical coast, $5000 ( E- Grade )

Question 5

What would happen to the assets of Jo’s Music Store if the going concern concept did not applie

Answer 5

The financial reports are prepared on the assumption that the life of the business is expected to continue to operate into the foreseeable future. ( A- Grade )

If the Jo’s Music Store is not a Going Concern then the Historical Cost Concept does not apply. Assets must be valued at Market Value. All the assets will all be classified as Current Assets. There will be no Non-Current Assets, as the business will close very soon and stop trading – well within a year.

Question 6

How does recording prepaid insurance $500 in Jo’s Music Store meet store meet the accruals concept ?

Answer 6

Prepaid Insurance $500 is recognised when it occurs and is recorded and reported in the financial reports of Jo’s Music to the period to which it relates

Prepaid insurance $500 is added as a current asset in the statement of financial position.

In the income will decrease by $500

This is because it relates to the next accounting period

Question 7

Jo’s Music Store is owed dividends of $300 which will be received next finical year how will the accruals basis be applied to this examplr

Answer 7

Dividends owing $300 are recognised when it occurs and are recorded and reported in the financial reports of Jo’s Music Store the period to which it relates

Dividends owing $300 dollars is recorded as an a accrued Income increasing a current asset in the statement finical position.

In the income statement of the of financial position.

In the income statement , other incoming diverdens received will increase by $300 this is because it relates to this accounting period