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ACC 30105

Tutorial 1
Question 1
Identify by letter the assumption or characteristic of information which best represents the
situations given.
A. Accounting/business entity assumption
B. - Accrual basis assumption
C. - Going concern assumption
D. - Period assumption / Accounting period
E. - Relevance
F. Substance over form
1.
2.
3.
4.
5.
6.
7.

The assumption which assumes that the entity will not be liquidated in the near future C
In a single proprietorship, the owners house and car are not recorded in the records of the
business.A
Services provided by a company are recorded before the receipt of cash.B
Machinery held by the business under a long-term lease arrangement is recorded by the
business as its own asset.E
An expense is recorded in the year in which an asset or benefit is consumed F
Information useful to users for making economic decision is shown on financial
statements.
For accounting purposes the life of an entity is divided into arbitrary equal time intervals.
D

Question 2
Identify the answer for the following questions.
a.) Which assumptions is the basis upon which the personal assets of the owner are excluded from
the businesses balance sheet?

b.) The assumption which requires transactions to be recognised in the accounting reports when
they occur and not when the cash is received or paid is ___B___________.

c.) The assumption which assumes that the entity will continue in operation for the foreseeable
future is__________D______.

d.) In order to prepare financial information for interested parties Chambers Company divides the
economic activity of the firm into three-month segments and prepares financial statements at
the end of each segment. Which accounting assumption is Chambers applying?
1

Question 3
Identify the concepts or principles that apply in the following situations. Choose from substance
over form, prudence, historical cost, and time interval.
a)
b)
c)
d)

The big City Book Shop reports its inventory at market value of $243000. The inventory
cost $261000. ( historical )
Albury Paper Mill reports 1000 hectares of timber land at cost of $800 per hectare. The
estimated current market value is $3000 per hectare. ( time interval )
Blue Circle Leasing Ltd is publishes quarterly financial statements and annual financial
statements. ( prudence )
Binjai Ltd records a piece of freehold land financed through a bank loan in its financial
statements. over form

Question 4
Identify the single accounting concept or principle that is most clearly violated by each
accounting practice. Choose from prudence, money measurement, understandability and
business entity.
a. The net realisable value of Cherry Confectionerys inventory is $250,000, but the business
reports its inventory at its cost of $275,000.
b. The liabilities of Mobile Accounting Services exceed its assets. To get a loan from the bank,
Mobile Accounting Services owner, Liz Smith, includes her personal investments as assets
on the balance sheet of the business.business entity
c. Dairy Delights omits the notes to the accounts from its financial statements.Prudence
d. A company includes non-monetary information in its financial statements. money
measurement

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