Answer To Financial Accounting Question Paper FA No 4: Test on Accounting Concept & Regulatory Framework

September 5th, 2006 /

Answer to FA Test Paper FA No 4
Test On Accounting Concept & Regulatory Framework
IDENTIFICATION OF THE VIOLATION OF THE FOLLOWING BASIC ACCOUNTING

(1)	Historical Cost	Company A reported its fixed assets on its balance sheet at fair market value
(2)	Matching Principle	Company A paid $20,000 insurance premium which relates for a period of two years period. It charged all this $20,000 out to the income statement as insurance expenses
(3)	Realization or Revenue Recognition principle	Company A recognizes revenue for $20,000 advance payment received from its customers. However, the customer’s order can only be shipped next month.
(4)	Full Disclosure principle	Company A is involved in a major lawsuit where it has been sued for $100million relating to the infringement of its competitors patent. Company A felt that the suit is without merit and therefore does not disclosed its existence in its financial statements
(5)	Business Entity/ Economic Entity Assumption	Company A includes the personal assets of its principal shareholders.

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Question To Financial Accounting Question Paper FA No 4: Test on Accounting Concept & Regulatory Framework | Basic College Accounting.com
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slang
u hv misunderstood the questions set:
the questions asked for the principles/concepts that have been VIOLATED not asking to DEFINE principles/concepts.

Pl read all future questions in your exam more carefully otherwise u are losing marks for no reasons!

One essential requisite if you refer to my section on exam technique is to read the question carefully before replying.