Answer to FA Test Paper FA No 3

Test On Accounting Concept & Regulatory Framework

IDENTIFICATION OF BASIC ACCOUNTING

(1)

Business Entity

Mr X, the sole proprietor of Company XY does not list his personal house on the balance sheet of Company XY

(2)

Full Disclosure

Company A included a disclosure note describing a lawsuit it is defending even though the suit has not yet been settled

(3)

Realization or Revenue Recognition principle

Company B records revenue when products are delivered and services being rendered, even though cash has not yet been received.

(4)

Matching principle

Company A amortizes the cost of a trade mark over the trade mark’s useful life.

(5)

Historical Cost /original transaction value principle

Company X depreciates the cost of its equipment rather than the replacement value of the equipment.