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

Answer to FA Test Paper FA No 4

Test On Accounting Concept & Regulatory Framework



    Historical Cost

Company A reported its fixed assets on its balance sheet at fair market value


                   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


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.


         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


Business Entity/ Economic Entity Assumption

Company A includes the personal assets of its principal shareholders.


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